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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 12 - Evidence - Meeting of May 14, 2014


OTTAWA, Wednesday, May 14, 2014

The Standing Senate Committee on Agriculture and Forestry met this day at 1:09 p.m. to continue the study of Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures.

Senator Percy Mockler (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I call to order this meeting of the Standing Senate Committee on Agriculture and Forestry.

[English]

I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Percy Mockler, senator for New Brunswick and chair of the committee. I would like to ask all senators to introduce themselves before we officially introduce the witnesses. We will start with the deputy chair.

Senator Mercer: Thank you, Mr. Chair. My name is Senator Terry Mercer. I'm from Nova Scotia, and I apologize for my tardiness.

[Translation]

Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, in New Brunswick.

[English]

Senator Tardif: Good afternoon. Claudette Tardif from the province of Alberta.

[Translation]

Senator Maltais: Ghislain Maltais from Quebec.

[English]

Senator Oh: Victor Oh, Ontario.

[Translation]

Senator Dagenais: Jean-Guy Dagenais from Quebec.

[English]

Senator Beyak: Senator Lynn Beyak, Ontario.

Senator Plett: I'm Senator Don Plett. I'm from Manitoba and proud to be the sponsor of this legislation.

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you, senators.

To the witnesses, thank you very much for accepting our invitation.

Today, we are continuing the study of Bill C-30, an Act to amend the Canadian Grain Act and the Canada Transportation Act and to provide for other measures. Bill C-30 is the fair rail for grain farmers act.

For the first panel, honourable senators, we welcome, representing the Inland Terminal Association of Canada, Mr. Perry Pellerin, Manager, GNB Grain Source LTD.

By video conference, we have, from the Quorum Corporation: Mr. Mark Hemmes, President, and Mr. Bruce McFadden, Director of Research and Analysis, Grain Industry.

To the witnesses, thank you for accepting our invitation to share your comments and opinions on Bill C-30, the fair rail for grain farmers act.

Following the presentations from the witnesses, a question and answer session will take place, and each senator will be given five minutes to ask questions before the chair will recognize another senator.

[Translation]

Afterwards, we will continue with additional questions, should the senators have any.

[English]

We will now begin the presentations. I am informed by the clerk that the first presenter will be Mr. Pellerin, to be followed by Mr. Hemmes.

Perry Pellerin, Manager, GNP Grain Source LTD, Inland Terminal Association of Canada: Thank you for the opportunity to present the views of farmer-owned inland term nationals. ITAC, the Inland Terminal Association of Canada, represents the interests of seven terminal companies in Saskatchewan and Alberta, companies that are at least 50 per cent farmer owned. The terminals typically handle about 2.5 million tonnes of grains, oil seeds and specialty crops each year and also have cleaning and drying capability. The seven ITAC members include: South West Terminal, near Gull Lake, Saskatchewan; Gardiner Dam Terminal, near Strongfield, Saskatchewan; CMI Terminal, near Naicam, Saskatchewan; Prairie West Terminal, in the Dodsland/ Plenty Area of Saskatchewan; North West Terminal at Unity, Saskatchewan; Great Sandhills Terminal, near Leader, Saskatchewan; and Providence Grain Solutions, based out of Fort Saskatchewan, in Alberta. We believe farmer-owned terminals provide competitive choices for farmers both for our shareholders and non-shareholders.

We welcome the proposed continuation of minimum volume requirements for CN and CP Rail. However, the broad approach may have unintended negative consequences.

While the measure has provided that much-needed focus on grain transportation issues, it has not resolved the issue that continues to challenge the independent terminal. The allocation process that allocates cars based on historic shipping is not fair and impacts competition in the country. To restrict a company to 0.6 per cent of the total car supply hampers that company's ability to compete, just by space constraints and their ability to consistently buy grain.

In real numbers, prior to the legislation, that same company would receive about 18 cars a week based on the railway allocating 3,000 cars. Currently, with a 5,000 car weekly program, they receive 30 cars. That, combined with substandard performance on cars that they are actually allocated, results in a difficult operating ratio for the independent.

The independent terminal is, in effect, a high throughput facility that had all the opportunity to grow and flourish in this new open market but instead has been hampered by poor performance and an inadequate allocation process. We have seen two of our facilities sold this past winter and suspect that we may see a few more this spring.

In reaction to the volume requirements, the railways have focused on what we would call the low-lying fruit, so to speak, for example, spotting the majority of the cars in close proximity to the port or along the main line. This is not a positive outcome for the independent or the receiver who is now seeing train arrivals out of the sequence in which they were ordered. Again, we are sure this is not the intended result of the legislation.

There is no transparency in the system. As an independent shipper, it is difficult to determine where the railway efficiencies begin and the fair and equitable treatment of all shippers ends. Basic requirements of good communication and timely information have been all but forgotten. The railways' desire to develop ways of getting things done has been replaced by validating ways why they cannot.

The immediate issue is the changing of the interswitching zone from 100 to 160 kilometres. One of the downsides of that could be that the facilities outside that 160 kilometres will be more isolated than they currently are. The mechanics of the interswitching will determine if it will achieve the desired results. The size, rate structure and accessibility to interchange will determine its value. Obviously, we need the railways to have the desire to make it work, rather than to focus on why it does not.

As well, fines that might conceivably be imposed against the railways by the Canadian Transportation Agency are payable to the Receiver General. If fines were paid, instead, to the grain companies suffering a lack of service, that could facilitate possible payments to farmer customers who may not be able to deliver grain due to the backlog.

Attaining a service level agreement is an adversarial process that requires a great deal of time and energy, with a significant level of cost. The purpose of such agreements should be to determine an acceptable level of service, with consequences for non-performance on all sides. Instead, it has taken on the life of a modified version of a level of service complaint, with all of the theatrical events often associated with that process. Yet again, this is not as intended and, eventually, not practicable for the independent or any small shipper, for that matter.

The commitment to collect more data from the railways, with all of the other players in the logistical chain, is more than welcome. This is vital to the system improvements. However, we must be sure that the data that we collect reflects the true picture. Record unloads or higher car velocity do not always translate into the right cars arriving at the right time for all shippers.

In conclusion, it is ITAC's view that while immediate improvement in grain movement is important, and we do appreciate the efforts of the government and past legislation, we still feel we have a lot of work to do. It is vital that we make these changes and then hopefully we'll move the industry along to the path of sustainable, long-term solutions. Thank you.

The Chair: We will go now to the next presenter, Mr. Mark Hemmes, President, Quorum Corporation, by video conference from Alberta

Mark Hemmes, President, Quorum Corporation: I appreciate the invitation to appear before you today. My name is Mark Hemmes and I represent Quorum Corporation. Our company has been under contract with the federal government since 2001 as the grain monitor. In that capacity, we are charged with monitoring the performance of the grain handling and transportation system in Western Canada. We report to the Ministers of Agriculture and Agri-food Canada and Transport Canada. Our reports are submitted quarterly but we also report on an ad hoc basis when situations dictate, the current situation being a good example. In order to understand all aspects of the issues facing the industry, we maintain constant contact with stakeholders in all parts of the supply chain. My remarks today are going to be based on those extensive communications as well as statistics and measures that we developed as part of the grain monitoring program. I'll focus on the current status of the grain handling and transportation today.

Last September, the preliminary forecast for this past crop year showed that it would be an exceptional one with Statistics Canada issuing a preliminary forecast for a crop of about 65 million tonnes. At that time, grain companies were already advising the railways that they were going to see a higher than normal crop and that they would be looking to ship substantially more grain. Despite this, the railways advised the industry that they were planning to move only about the same volume as they had the previous year. But, they said that they would attempt to supply 5,000 to 5,500 cars a week each or 10,000 to 11,000 cars a week in total.

The full impact of the size of the crop did not become apparent until November, when Statistics Canada issued their November survey and stated that it was going to be more than 75 million tonnes.

With regard to the performance of the system, by week seven of this crop year, which was in mid-September, the country elevator system was filling with the fall harvest and near to its working capacity. From that time until week 33, half a year later, the stocks in the country system did not fall below about 95 per cent of the working capacity of the country elevator network. For all intents and purposes, the elevator system was full for that entire period.

Conversely, port terminals experienced the opposite situation over that period with inventories at historically low levels. Consequently, port terminals had a very difficult time filling the arriving vessels because of a lack of grain at the port.

Throughout this year, we've been closely monitoring the situation and watching the railways and the railcar allocation: the unloads at port; the vessel loading at port; and the lineup of vessels waiting for grain, with particular focus on the West Coast.

With regard to the overall performance of the system, one of the key numbers we look at is the unloads at port. As we stated, the system ran well until about the end of October. In those first 12 weeks we saw the West Coast unloads about 7 per cent higher than last year. Thunder Bay was down about 13 per cent, so the Western Canada total was about 2 per cent higher than last year by the end of October. But from the end of October until the end of March, 18 weeks, we saw considerable and consistent degradation in performance with unloads trailing the previous year by 8 per cent and the total Western Canada unload performance down 12 per cent.

When comparing allocation versus unloads in the West Coast, we have seen an estimated weekly shortfall of car supply between 15 per cent and 25 per cent. It's apparent that railways were not supplying the cars that they had committed to the grain companies. The consequences were low terminal stock levels, slowdown in vessel loading and vessel lineups of historical proportion — at one point as high as 38 vessels at Vancouver and 17 vessels at Prince Rupert.

It's important to note that in the period since the implementation of the order-in-council, though, we've seen a significant turnaround. Unloads at the West Coast from week 31 to 39 — these last eight weeks — are up about 22 per cent; Thunder Bay is up 5 per cent; and the total for Western Canada ports is up 20 per cent. We're also seeing a reduction in the stocks in the country, freeing up space for the producers to deliver grain, and available stocks in the ports are increasing. While vessel lineups on the West Coast remain abnormally high, they're down significantly, currently at about 24 vessels at Vancouver and 7 vessels at Prince Rupert. In terms of the levels of shipments from the Western ports, the West Coast is even with last year's movement at this time, and overall we're still about 3 per cent lower than what we were last year.

In summary, I don't believe that there is any one event that you can point to that would be responsible for the problems, but I'm going to make three points for you to consider. There is a big issue of under-commitment by the railways to the grain companies, which has led the grain companies to make sales and charter ocean vessels that the system was not capable of loading. This led to extraordinarily long wait times on vessels, out-of-contract penalties, complaints from shippers about rail service and rail liability, and severe anchorage congestion at the ports on the West Coast. Most of these costs will get passed back to the producer.

The railways faced significant operational difficulties this winter and had a hard time working their way through it. It was well into last March when they actually got back up on their feet.

I would also point to the fact that this year's bumper crop has not been a challenge for the grain system yet. It will only start to challenge it in the next few weeks. Right now, the system is basically working to keep up to where we were last year, and it will start to move the extra tonnage in the coming weeks.

The dynamic that has emerged through this crop year is once again focused communication. I would point that out as well. The government has demonstrated that it is serious about the GHTS performance, improving and establishing better and sustainable mechanisms.

I would say that there is no doubt that the order-in-council has made a difference in the railway's approach to the movement of grain. While we've seen a remarkable increase in the volumes moving to port, we've also heard of some of the challenges faced by smaller shippers in the country that may not have a mainline location or the capability of loading full train-load volumes that the railways are focusing on now to ensure that volume targets are met, as Perry pointed out. Also suffering are the lucrative markets in the U.S., which railways have steered away from because servicing them also involves small-lot volumes.

In closing, I would say that you can call all of these unintended consequences, but they, in addition to the issues faced this winter, all serve to harm Canada's international reputation as a consistent and reliable supplier of grain.

Thank you for your time. I'd be pleased to answer any questions.

The Chair: Thank you very much, Mr. Hemmes. We will move to questions.

Senator Mercer: I thank all three of you for being here today. I appreciate that.

Mr. Pellerin, you indicated that some of your smaller facilities were sold this winter: To whom?

Mr. Pellerin: Actually, Lethbridge Inland Terminal sold to Viterra, who purchased it about the end of February. Prairie West Terminal Ltd. is having a vote next week, but we expect its sale to go through to the Wheat Board.

Senator Mercer: To the Wheat Board. So we're seeing the smaller people being sold to the larger of those two that you indicated.

Mr. Pellerin: You're seeing that our facilities, as I mentioned, are basically farmer-owned, the majority of them. Several of them are 100 per cent farmer-owned. They're made up of farmer-run boards.

This new world of marketing has been a challenge for them. I think they were willing to take that on, but when you combine that with the uncertainty of what we've seen in the rail service, it's overwhelming for some of them. Some of the bigger fellows are going to take advantage of that; they know we're on the ropes and a little scared, and it's a good time to come and maybe say to some of the farmer boards, ''Hey, I can relieve that pressure.''

Senator Mercer: Again, I don't want to go back to the debate about the Wheat Board, but one of the things I'm observing — and you'll correct me if I am wrong — is that when we switched from the single desk to the open market, we didn't bring along another plan of how individual farmers and suppliers acted on their own in a market where they weren't under the umbrella of a larger organization like the Wheat Board. Of course, they're now competing with the much larger people, head to head.

Mr. Pellerin: If you look at it from the independent point of view, the debate about the Wheat Board was done. We've moved on from that. We felt that we could actually deal in the open market. We thought we could look after our customers.

It became complicated in that it's hard to compete in the driveway when the fellow across the street is getting train after train and we don't get any service. It puts us in a real bind. Then, when we did get a train, if it took 14 days to get to Vancouver, it was capital tied up. For an independent, that is rather significant.

Senator Mercer: I was curious about your comment about people outside the new 160-kilometre circle for interswitching. You said that they would be more isolated. I thought the new boundaries were an advantage to people in that they would have been isolated before, but are they not closer to a source now?

Mr. Pellerin: I wish we would have had this in place five years ago. I think it would have helped. I think it's going to increase competition within that zone, but if you're outside that zone — let's say, for example, the folks in northern Alberta, or, better yet, I represent Great Sandhills Terminal in Leader, Saskatchewan, which would be outside that zone. Really, that grain has nowhere to go. So if you're the railway, you might focus more on those places that will now be competitive.

Where the grain is trapped, be it at Leader, Saskatchewan — northern Alberta would be another place I would be concerned about, and the Rycroft area and Grande Prairie — they're going to be more isolated. So what incentive is there for the railway to go after that grain while they're competitive in other areas?

Senator Mercer: Mr. Hemmes, you've been the grain monitor since 2001. You have a perspective here that would be interesting for us to hear. How does the system of 2013 and 2014 compare with previous grain handling and transportation in your history?

Mr. Hemmes: In the last 13 years, it has changed significantly. First off, you see a significant reduction in the number of elevators; they have gone from about a thousand elevators down to 392. You see that the size of the car blocks the railways have been handling has increased from roughly 18 to 25 cars to well over 75 cars on average.

All in all, I would say the system is far, far more efficient than it was 13 years ago. The volumes the railways and the system are handling have increased significantly, as well, on average.

In the post-single desk period, the system has actually become more efficient in many ways. So I would say that we've got a better system today than we did before. That said, I think now we've got some issues insofar as railway capacity is concerned.

Senator Plett: Mr. Pellerin, you mentioned that fines are paid to the government rather than to the shipper. The way I understand it, for the mandatory volume requirements — in fact, there's an amendment made to the bill, and the new clause allows for problems like demurrage — those costs are awarded to the shipper by the railways; is that correct? Would you comment on that? How do you feel about that amendment?

Mr. Pellerin: Actually, I apologize for that. That is correct. That is something we're definitely in favour of.

As mentioned, when you're an independent facility, our line of credit is not always what our competitors' would be. We can be exposed to some severe costs. I know at one of our facilities, we were facing a demurrage bill of $75,000 a day while we waited for product. The ability to recoup those losses from the railway for poor performance is critical to our operation.

Senator Plett: So that's certainly going in the right direction?

Mr. Pellerin: A hundred per cent.

Senator Plett: For me personally, the interchanging is something great. I'm from Manitoba. We're going to be hearing from OmniTRAX later today. They are telling us that they can now get into northern parts. I understand you're talking about some areas in Saskatchewan and Alberta that are isolated, but certainly in the province of Manitoba, they are getting into the northern section of the farming country they weren't able to access before. We've gone from having to 14 elevators being accessed in an area to 150 elevators.

Aside from the fact there will always be some issues and some isolation, that does go an awful long way to helping a lot of the people who were isolated before.

Mr. Pellerin: Yes. If you look at a map of southern Manitoba — and when I say ''southern,'' I mean going up as far as Dauphin, almost — and southern Alberta, especially with the access now of BNSF coming out of the United States, I think those are huge advantages.

Even in Saskatchewan, with the situation with OmniTRAX, the other piece of this will be the rate structure. Even within the old 30-kilometre interswitching zone that we used to have, the railways would make that almost impossible to do financially. It's important that we keep our eye on the ball there about what that rate structure will be in those interswitching zones, but anything we can do to improve and create competition is definitely a plus; there is no doubt about that.

Senator Plett: Certainly Dauphin is well within the area now. I am looking at our map here, and Dauphin is well served. Being from southern Manitoba, I would consider Dauphin maybe central to the northern part of Manitoba.

Mr. Pellerin: I always have to be careful there. The folks at Kenora and that area don't consider themselves central.

Senator Plett: I certainly appreciate that.

I would like to ask our friends from Quorum Corporation a question or two. As Senator Mercer already said, you have been in charge of the grain monitoring there for quite some time. I would like to hear a little bit about the ports and whether you feel that the ports would be able to handle everything that can be thrown at them with this new legislation. You did talk about there still being a lot of backup at some of the ports. I will ask a few questions all at once, if I could.

You said the backlog in some ports is still very high. One of my questions would be: What is normal when you say it's still high, and how do we get to normal?

Then you said we had bumper crops this year. Correct me if I am wrong in how I understood you, but you said that with the backlog, we still aren't feeling the effects of this. So I'm wondering when we will feel the effects and what happens if we have another bumper crop next year? Are we moving in the right direction to deal with that? When will we feel the effects of this?

There are three or four questions. I hope you can shed light on all of those.

Mr. Hemmes: Starting with the first question about the ports and their capability to handle things, the proof has been in the performance over the last few weeks. In fact, week 39, the last week that we tracked, which was the week before last, Vancouver actually set a record in unloads. They unloaded 4,867. Prince Rupert had the second best week they ever had. Total West Coast unloads were 6,740. That is the best week we've ever seen in history on the West Coast. The proof is in the pudding. I think the port terminals can handle that.

I made some phone calls this morning. There were times in the last couple of weeks where they ran out of cars, so that tells me that they can even handle more than what they have done to date. I don't have a concern there.

Insofar as the backlog is concerned, I point to that fact because what we've done so far this year has only been able to pretty much move the amount of grain that we moved last year, or actually a little bit less. What that says to me is that we're just pushing the way forward. As we move into this spring period and the summer, we're going to have to hightail it to move enough grain to clear space in the bins because we're going to run into a problem.

I think the minister yesterday mentioned the fact that we're looking at a record carry-out this year already. No matter what we do, we're going to have a big carry-out. If we have even a normal sized crop we're pretty much back to the same position we were in last fall where we're looking to move significant amounts of grain.

The question to the railways has to be: Are they prepared to keep moving high volumes of grain through this summer and fall period and into next winter?

The other thing that a lot of people in the industry are concerned about is their ability to bounce back from the inevitable disruptions they're going to have as we go into the winter period, because railroading in the winter is tough. They've got to be able to recover very quickly.

Does that answer the questions?

Senator Plett: I think it does.

If I could throw one more one at you, it might be speculation your part. If you don't want to speculate, I appreciate that. We will have the railways here, but I would like to get your perspective on this. All of us have been reading reports in the media where the railways have gone to other products — i.e. potash, oil, so on — and this was one of the problems that helped mitigate all of the issues here.

Would you, in your observation, have seen that as being a problem? Of course, the railways are saying no, they have never substituted any other products for grains. It was simply the harsh winter and so on that created the problems.

I would like to get your perspective on it, and it's certainly a question that we will be asking the railways.

Mr. Hemmes: I would say that I do not believe that oil was an issue. When you look at their total contingent of oil, on average it's about 2 per cent per year of what their total movement is compared to grain, which for CN is about 18 per cent and for CP it's about 22. In terms of that, I don't think that's an effect.

The other thing is that oil proportionately moves mostly south and a little bit east. Grain moves west and east, so they're not in competition with each other for crew resources at any rate, and they don't use the same kind of car equipment. I don't see that as being a part of it.

When you talk about potash, it suffered this year as well. I think the people at Canpotex had said at one meeting I was at that they were behind by as much as 400,000 tonnes this year. It's not just the grain industry that's hurting because of the railway performance; it's other commodities as well.

You can blame winter, but I don't know necessarily that that's the whole issue because winter has come every year that I've been alive in Canada, and it gets cold.

Senator Tardif: Thank you for being here today and for your presentations.

Mr. Pellerin, I would like to come back to some of the comments you've made and to your remark about unintended consequences. You indicated that the railways could be concentrated on low-lying fruit. How can we make sure that the railways will be doing more than concentrating on the low-lying fruit?

Mr. Pellerin: I think it ties in a little bit to the last question about the poor capacity. A couple of the inland terminals are also owners of Alliance Grain Terminal in Vancouver. I participate in the logistics of going to that port. To the previous question, one of the things that will become important is that the railways pay attention to what is required.

If we're going to move this type of volume consistently right through to next year, we need to have the right cars arrive at the right time to match the vessel arrivals. One of the reasons you're seeing, at least in my opinion, good unloads right now in Vancouver is that we still have 28 vessels sitting there. At some point we should be more current, and then the timely arrival of grain will be critical. If the grain that is needed is in central Saskatchewan, we have to go get it and the railway has to understand that.

I think we need not only a commitment from them to put the resources in place, but a commitment also to put the right grain at the right place at the right time.

Senator Tardif: Is there a way of regulating how grain traffic is distributed in specific corridors?

Mr. Pellerin: I want to be careful. Our understanding of how we thought the system was going to work last spring was that it would be regulated a little bit by the receiver's ability to unload. So if you had a facility that could unload 800 cars a week, it made sense to have that facility say, ''Here are the 800 cars I need, and as long as the railway performs, you keep bringing them to me and we'll be fine.''

What the railways switched to, once the crop seemed to be so big, was this historic percentage. To me it didn't make sense. We had cases in the fall Alliance Grain Terminal only had 250 cars under load. We had lots of capacity, but because we weren't receiving the allocation in the country, we couldn't utilize that capacity.

The system of how we allocate cars, at least in my opinion, would be that we have to be more sensitive to the receiver, and the needs of the receiver and our customers. Hopefully that answers the question.

Senator Tardif: Do you see that this bill proposes a long-term solution to this whole issue of grain transportation in Canada?

Mr. Pellerin: I'll tell you what I think this bill has done. I've been in this business for — that will tell you how old I am — 37 years. The fact that I am here today, and Mark Hemmes is here today, in front of you folks and we're talking about grain tells me this bill has been a positive thing. We need to continue that. We still have some work to do, because one thing about this new market is that I think there's lots of opportunity for growth. The crop size is not going to get smaller unless some catastrophic drought or event happens.

So I think the fact that we are talking about and working towards a longer term solution is very positive, and I think the legislation has gotten everybody's attention. Finally, we are collectively standing up to the railways and saying, ''That's enough; we have to be better.'' I think this has been a positive approach. It has been painful but positive.

Senator Tardif: Do you think the bill goes far enough?

Mr. Pellerin: I want to be careful because I don't want to get run down outside.

I think it still has a little room. Obviously, I still have some fears for the smaller shipper, not only the independent terminals I represent but even maybe some of the small guys.

Mark alluded to it a little bit; I think our next biggest issue is communication. We have a very difficult time getting information from the railways and trying to understand what they want to do. The message to you folks might be different from the message I receive. That is our next challenge. I'm not sure you can legislate communication — that's a difficult thing — but I see that's where our next biggest challenge is.

But I think that compared to where we were, we have made tremendous strides here in the last little while.

Senator Tardif: Mr. Hemmes, would you care to comment?

Mr. Hemmes: Perry's point is really important because part of the issue that we've seen is that communication between shippers and railways is not the greatest; there are problems in the processes and in the communication. I think if those two groups were able to sit down and have a discussion as equals, we would go a lot further in solving some of the problems. One of the issues that has challenged us to this point is the fact that they do not talk to each other as equals because of issues like market power.

[Translation]

Senator Dagenais: Thank you, Mr. Chair. I want to come back to the issue raised by Senator Tardif. She pointed out that one of the objectives of the bill we are studying today is to find long-term solutions to the grain transportation problem. I understand the need to exercise caution, as well. You also mentioned to my colleagues that the communication problem should be resolved. Would you be prepared to consider other solutions? We know that the bill before us today is part of a long-term perspective. Could other measures be implemented to improve the situation, since we know that grain transportation is becoming increasingly important?

[English]

Mr. Pellerin: In my opinion, we are looking at service agreements, and service agreements could go a long way in making all sides accountable for performance. If you don't perform, there has to be a penalty. I think we have to get to those.

As I mentioned, the unfortunate part of that is we can't make them so cumbersome and awkward, like we did with the level of service complaint, that it is out of reach for a smaller shipper or an independent person. We need to do some work on that yet. We need to make sure that process is what I believed it was intended to be, which is more user-friendly.

I fear that it's getting bogged down and almost everybody's lawyering up and all that stuff, and it's not a good thing for anybody. If we look at history, I've often been asked why there wasn't more level of service complaints. One of the reasons for that is the cost and the time it takes. When you're taking on a railway, you're taking on the school bully. It is a very difficult thing to do. Hopefully, service agreements will not follow that same path.

I don't know if that answered your question.

Senator Robichaud: Mr. Pellerin, you said you feel there is a weakness in the distribution of cars. Before, you were receiving 18 cars per week and now you're receiving 30, and that's going to cause you serious problems. How many cars do you need to service your area?

Mr. Pellerin: As Mark mentioned, we sat down with the railways and gave them a number and said for each of these locations or a group of independents, this is how many cars per week we would need. I think part of that number is the fact that not only do we need a certain number — we give them a number for the collective group that I represent. It is not all ITAC members, but for the group I represent, we give them a number of about 225 cars per week. The key component to that is it had to be consistently at 225. We can't have a situation like this winter where we had weeks with 75 cars, and I had to try to distribute amongst seven elevators. You have to phone these guys and say, ''It looks like 10 apiece.'' You can't stay in business that way; it's unsustainable.

We have told the railways that we're willing to commit to a consistent number, and if we don't perform, we understand there might be a penalty. There's a cost for the railway to get power and crews and people, we understand that; but we have to get a consistent service, and our request is not a lot more than their own numbers say we should get.

For example, if they're doing 5,000 cars per week, the group I represent gets about 200 cars. Really, all we asked for was about 225. We just asked for consistency. That week 7 period right through to now, if we had gotten 225 cars per week, I think we would have been in pretty good shape. But when we only get 70 or 60 or less than that as a group, we have no hope for success. At times, we had facilities that would be a thousand cars behind. We just can't stay in business that way; it doesn't work.

Senator Robichaud: So this is going to have a direct impact on your farmer members, isn't it?

Mr. Pellerin: It does. We had facilities this January where we had what we call a no-bid situation. In other words, if you were a producer and came to the elevator and said, ''I would like to sell my canola,'' we would say, ''I'm sorry, we can't buy it.''

Not only did we not have room to take it into the facility, we weren't planning any other sales because we were so far behind that we couldn't afford to take any further risk on. We were already paying demurrage, so we were thinking it was going to be July before we got caught up. We can't afford to make any other sales, so we told the producer, ''Hey, there's nothing we can do to help you.''

Senator Robichaud: Were those your regular customers? What happened to them? Did they go to somebody else?

Mr. Pellerin: Unfortunately, some were shareholders. In some locations, they were board of directors where the CEO had to tell them, ''Unfortunately, we can't take your grain.'' They were forced either to find another facility that was able to do that — and unfortunately it might have been one of our larger competitors — or they were in a tough position where they had to sit on it and may still be sitting on it.

Where it becomes complicated for them is right now they're trying to put a new crop in the ground that requires inputs and seed and all that other stuff. I think some of our customers were feeling a financial crunch last year.

[Translation]

Senator Robichaud: I have a question for the teleconference participants.

[English]

To Mr. Hemmes and your partner, you monitor grain and grain transportation and everything that relates to that. You mentioned that at one time, Statistics Canada determined that the crop would be 65 million tonnes. Then in November, they came out with a new number of 75 million tonnes. Now, surely when you heard that, you knew there was a very serious problem on the horizon. When were the authorities made aware of this very situation that was just waiting to happen?

Mr. Hemmes: They were aware of it then, at that point in time, when it was 65 million tonnes. A normal crop would be about 55 million tonnes. It went to 65, and there was another 10 million to deal with. At that point in time, the railways had said that they were going to deliver between 5,000 and 5,500 cars a week each. For the period running right up until the end of October, they were pretty close to that. It was about the end of October when everything started to fall apart.

The crisis didn't really raise its head until early December, when it was apparent that a combination of the extra 10 million tonnes on top of that and the fact that the railways were not performing was becoming a challenge.

We were in discussions with people in both Agriculture Canada and Transport Canada, telling them that this was a looming crisis. As we got closer to Christmas, it became really apparent. As Perry said, that was about the point in time when the export basis was really starting to widen with the grain companies sending that signal.

I would also point out that it wasn't just the small ITAC elevators that went ''no bid'' through that period. The larger grain companies were going no bid as well, because they didn't have any space for grain or any tolerance to sell. Pretty much the sales program started to shut down right around Christmas as well. They just realized that there was no point in trying to sell because the vessels were backed up at the port, and we were in trouble.

Senator Robichaud: When was the crisis point of that troubling situation? Did you say in January, or December?

Mr. Hemmes: I would say the magnitude of the problem started to reveal itself in early December.

I should also point out that I don't think there was anybody in the industry who even for a second believed that the railways were going to be able to move this entire crop. I've asked CEOs of major grain companies the very same question: ''Did you ever, at any point in time, expect that we were going to move the crop?'' The answer, without exception, is an unequivocal ''no.'' Everybody knew that this was going to be a year with a big carry-out.

What they were hoping for, and I think you will find Minister Ritz — I don't want to put words in his mouth, but everybody had the same expectation that we would take a big chunk out of it this year. Until the OIC came into place, I don't think that we would have taken a big chunk out of it, in any other circumstance.

Senator Robichaud: But how do you explain the time when it was evident that there was a crisis to the time when the measure was put in to move the grain? There were a few months there.

Mr. Hemmes: There were ongoing discussions between the government and the railways and the industry where attempts were made to come up with a plan. I would say that after those discussions kind of went nowhere, that's when they made the choice.

Again, I can't speak to what the government's intentions were through that period of time, but I did attend some meetings where the minister made very earnest attempts to get the parties together and move forward with a different plan.

Senator Oh: Thank you, witnesses. So far we have heard that the system has improved and is more efficient, but what is the reason? Is it communications problems? They must have foreseen that there was a bumper crop coming and there was lots to move. Even without the bumper crop coming, the system should still be flowing to the port in Vancouver or Prince Rupert. Why are there vessels still waiting for grain to come? I think communication is a big problem here between the farmers or the grain company and the railways. Can you explain that?

Mr. Pellerin: I think in the big picture, communication is probably the biggest problem we're having. As Mark mentioned, we head into the end of October, November, and we're starting to see, hey, we're in big trouble here. But when you're talking to the railways, it takes a month to get them to answer the phone, never mind trying to resolve an issue this big. Often we hear stories about government being slow moving, but I think when you negotiate or try to work with the railways, that's slow moving. I think that's our biggest issue. It just takes that long. I think the railways were hoping maybe it's not going to be that bad a winter or maybe something was going to fall out of the sky to save it, and it didn't. It wasn't until we got to December when everybody collectively said, ''That's enough; we're in serious trouble,'' and then action had to be taken. There was no more room for dialogue. Something had to be done, and I think that's what the government did.

Senator Oh: But you still have to have the normal flow and trucks going to the port.

Mr. Pellerin: I used to work for the railway. In my 22 years at CN, and I know Mark was there, I have never seen 69 vessels in Vancouver, and I've never seen 17 vessels in Prince Rupert.

To me, we knew that the situation was bad. The situation got terrible and we had to take this kind of action. With that many vessels backed up, we are going to be well into summer before we have any hope of getting caught up. As Mark mentioned, we are just keeping our head above water with what they're doing today. If we ever have another bumper crop — I don't think we're out of it yet. Even as was mentioned, if we have close to a 28 million tonne carry-out, if we have an average crop, we have challenges next year.

It's pretty safe to say the railway is well aware of what those challenges are now. As Mark mentioned, I do believe winter is going to come again, so they've got to be ready next year. They have no excuse not to be ready, and we have to expect that of them.

Other commodities were mentioned earlier. We all have the right to move our product. I'm not fighting the potash guy or the oil guy. I think we all have the right to move what is required.

The Chair: In the spirit of cooperation, before we look at the second panel, we have four minutes left, so on a second round we have Senator Plett and Senator Mercer, each for two minutes.

Senator Plett: Also in light of the spirit of cooperation, I'll ask one very quick questions of Mr. Pellerin. You said, sir, you need 200 cars a week.

Mr. Pellerin: I think it was about 225. I want to be careful. I don't want to negotiate.

Senator Plett: Well, for the record, I say you deserve 250.

My question to you is, you're obviously not the largest player here, so in comparison, what would Viterra require?

Mr. Pellerin: If I told you 150, would you be okay with that? You know what; I don't see or have any knowledge of their sales book. It would be very unfair for me to even suggest a number because that would be awkward. I'd probably get into more trouble than it was worth.

Senator Plett: You would agree that, in comparison to the Viterras and the Cargills of the world, you are not a larger player, if you compare yourself?

Mr. Pellerin: No, we're not. I think the independents collectively might be what you would consider smaller shippers. But we do handle 2.5 million tonnes in a normal crop year. If you want to work that number out, you can look at what they would handle, and I will let you know that.

Senator Mercer: I want to go to two very important points. You said that in early October we're in big trouble. Someone else said in early September that we're in a crisis situation, and the words ''serious, serious trouble'' were used to underscore all of these things. Early December, end of October, and we don't see any action from the government until March. Would we be in better shape if the government had reacted in January as opposed to waiting until March, given that they would have to absorb the information from December and October?

Mr. Pellerin: You know what, in my personal experience of dealing with the railways, you can have a lot of meetings with them and they can show you a lot of numbers, tell you a lot of things that would make you believe they've got a handle on what's going to change or happen, and you would think there's some hope here.

I could see, be it an individual, government or anyone, being misled by the fact of having a meeting or meetings with the railways and thinking this is going to get better. I actually play the ponies a little bit. In hindsight, if I knew who was going to win the race, betting would be easier.

In this case, the railways can be very convincing. They're powerful organizations, and when they tell you it's going to get better, I can see people understanding that or wanting to believe it.

Senator Mercer: Unfortunately, they not only own the horses, they own the track.

The issue that is underlined here is to talk about communication and the failure of the service level agreements that are supposed to be in place between shippers and the railways. They are not working. There are no agreements in place. From what we've heard thus far, the railways are not cooperating in having service agreements, but you mentioned earlier that the cost of entering these service level agreements was prohibitive. What is the cost, from your perspective? You're a smaller operator in this big sea of grain and rail shipping.

Mr. Pellerin: Well, we've heard numbers that for an individual shipper you're probably looking at 75,000 to 100,000 at least to get a service agreement.

Senator Mercer: Wow.

Senator Robichaud: Could we find ourselves in the same situation this time next year, even with this legislation? It depends on the crop.

Mr. Pellerin: If we do, I would be the most disappointed person in the country.

Senator Robichaud: We would be, too.

Mr. Pellerin: There are so many people who are now clued in to the issues and are asking all the right questions, as you folks have today. If we're the same or worse next spring, I would be embarrassed as a Canadian. I wouldn't find that acceptable.

I do think that this process and the legislation are helping. We are heading in the right direction, so we just have to keep our foot on the gas.

The Chair: Mr. Pellerin, Mr. Hemmes and Mr. McFadden, thank you for sharing your comments and thoughts.

Honourable senators, we are having some technical difficulties with the video conference. That said, we will commence because of the factor of time, and when they come on board, we will then move to linking with them immediately.

Honourable senators, the next panel is Mr. Merv Tweed, President of OmniTRAX. We were supposed to have, by video conference, Mr. Ken Eshpeter, Chairman and CEO of the Battle River Railroad.

We ask Mr. Tweed to make his presentation, to be followed by questions from senators.

Mr. Tweed, for the record, I would like, as chair, to recognize that you were the former Chair of the House of Commons Standing Committee on Agriculture and Agri-Food. I believe it's the first time that we have a former chair before our committee.

Please proceed.

Merv Tweed, President, OmniTRAX: Thank you very much, and good afternoon. I'm just going to give you a quick overview, and then I have a couple of points aimed directly at the legislation.

OmniTRAX Canada is the owner of the Carlton Trail Railway in Saskatchewan and the Hudson Bay Railway in Manitoba, and we own a small piece of the Kettle Falls Railway in British Columbia, connecting down into Oregon.

We do operate North America-wide. We have 17 railways that we operate — short lines. We are the largest independent owner of short-line railways in North America, and, as recently as yesterday, we announced the purchase of the Brownsville port and rail in Texas.

So we continue to grow. In recent years, with some assistance from the federal government, we had some port revitalization, basically upgrades to some of our facilities. I think there's one point I will make right now so that I don't forget.

One of the upgrades that we did gave us the capacity to double our loading and unloading facilities at the port, which is very important when you're talking about cycle times on railways. In days gone by, that cycle time would be anywhere from 17 to 22 days, simply because of the delays in the transferring of product. We now can cycle in and out in 6.5 to 7 days. So it's made a marked improvement in our ability to service the communities that we represent.

We do provide freight services as well. We provide marine services to the Hudson Bay area, and we also operate VIA Rail services for VIA in the North.

Our location in Churchill gives us a shipping advantage to Rotterdam of 2.75 days, to Liverpool of 2.68 and to Oslo of 2.85. So we are positioned to move product into other parts of the world in a very timely fashion.

As for the issue we're talking about today, as far as the legislation goes, last year, OmniTRAX, through the Port of Churchill, did 640,000 metric tonnes of grain, which is about 7,000 railcars. October was our busiest time of the year. We did almost a third of our loading time in the month of October. For us, our season begins usually mid-July, and if we're lucky, we can get to November 15. So we have to put a lot of business into a 4.5-month cycle.

With the introduction of the bill, we certainly see that there's good support for it. For us, the mileage number takes us to a community called Hudson Bay. It's a fairly large grain producing area. Straight south of that is another community called Kenora, which is a huge grain-producing area. If I were to make any suggestions, one of them to our advantage would be to extend it to that. I'm not sure you're prepared or wanting to do that, but I think our biggest concern is — and I think you're probably going to hear this from a lot of the short-line rail — car capacity and car availability.

Obviously, with the pressure that's been put on CN and CP to deliver X amount of cars every week — and with them having to do that — they look at everyone else's operations, and basically they're regulated to deliver that much. Who suffers or who may be shortchanged in the interim is a concern of ours, and it's something that we're working with CN to address. I spoke to them as recently as today. I'm convinced that we can come to a resolution, but it is one of the biggest concerns that we have.

In previous years, we would have two basic exporters, Richardson International out of Winnipeg, and the Wheat Board. With the changes in the Wheat Board, we've actually grown. Last year, we had five shippers. This year, we are looking at eight. So we are growing the market and we are growing the opportunity.

Last year's total was 650,000 metric tonnes. We feel that with the changes that we've made and the improvements that we've made to our rail delivery system, our objective is a million.

We know that's not the answer to all of the problems in the grain industry, but we believe it's a part of the solution. We're working very hard with CN to make the cars available to us in a timely fashion so that we can hit those targets.

One of the things that changed with last year's crop being so large, our rail line normally starts in May, and we start moving product up to the port to ship in July. That has changed the whole cycle. There is so much grain on the market that everybody is shipping every day, trying to get it out to the market.

We're moving right now because of temperature and climate. We have leased 50 cars, and we're moving them on a regular basis. Our port will be full probably in the next 20 days. Part of the allocation system in the rail system is that the cars we're getting allocated in May, June and July really don't work for us simply because we don't have the ships coming in because of the ice conditions, and our elevator capacity is full.

So part of our proposal is to say put those cars back into the main system, which will help relieve some of the pressure in other parts of the country. Give us the allotted amount of cars, but start in July, August, September and October. Again, if we can accomplish that, then we can have a very productive grain delivery season.

Also, as was stated in your opening comments, I grew up in a rural community. I know what farmers go through when they can't move their product and I know what they're going through right now. I've held meetings all across northern Saskatchewan and Manitoba, and everybody is feeling the pinch. Everybody fears they're not going to get the car allocation they need to move the product. Partly it's because of the demands being placed on the two major companies but also just the glut that's on the market.

I won't go much further, and I'll open it up to questions, but I do want to say that we moved 275 tonnes in one month last year — the month of October — and that was a record year for us. I was brand new in my first month on the job, and my first question to our ownership was, ''Why do we only work 16 hours a day when we've got the capacity to work 24 hours and when we've got the capacity to move that much more grain?''

This year we'll be implementing that and moving to a 24-hour a day. We've started the process of training our people to be prepared for that. If anybody has been to Churchill, it's a different part of the world, and there are a lot of challenges at any time of the year with weather and conditions. But we believe just by taking that one simple step, we can increase our capacity by another 250,000 or 300,000 tonnes. It helps us, obviously — we're not going to deny that — but I think it will also help CN and CP and other movers of grain to alleviate some of the challenges.

As I said in my opening comments, one of the challenges we've always had is cycle times. I can assure you that is an issue we have addressed and are continuing to address. We understand that if we're longer than what we say we can do, it does cause problems for CN. Although we're not directly involved in the grain movement, in particular after November, in fairness to CN and CP, this year was a very challenging year, not only with a surplus of grain and cars, it was a terrible year for weather. We had more challenges this winter probably than we've ever had on record.

I'm not letting anybody off the hook, but I have travelled enough to know that sometimes when something gets lost and you can't find it, it isn't necessarily the carrier that's lost it; it's somewhere else in that supply system. We have to be cautious about bringing forward too many regulations without looking further down the road to see what the outcomes are expected to be. Every time there's an action, there is a reaction somewhere else, and it isn't necessarily always in a positive way. I'm sure you're hearing from some of those groups today, because they are frustrated, and we're frustrated. Right now, we have eight shippers talking to us that will not confirm or commit to us if we're not able to guarantee that we can supply the cars, and I can't blame them.

Thank you.

The Chair: Thank you, Mr. Tweed.

Next to present is Mr. Eshpeter, Chairman and CEO of the Battle River Railroad. We will ask questions afterward.

Ken Eshpeter, Chairman and CEO, Battle River Railroad: Thank you, Mr. Chair. I'm the Chairman and CEO of the Battle River Railway New Generation Co-operative. We chose the cooperative business model when we purchased the railway because it encompasses the crop model and an ethic our shareholders embrace.

When the Battle River Railway New Generation Co-Op was incorporated as a certified railway in June 2010, we adopted as our motto ''a local railway providing user-friendly service.'' Our goal was to maintain and enhance 60 miles of former CN branch line with grain movement and other rail business as it became available.

Federal legislation had made it possible for our co-op to purchase the former Alliance sub from CN, which we are grateful for. But now that we are owners and operators, we find we have very little leverage. We are of the strong opinion that when federal legislation makes it possible for two large oligopolies to control the total rail system, some entity must be prepared to be the referee.

There are a number of obstacles preventing the Battle River Railway from creating a vibrant and viable short line, but I will dwell on two major obstacles: car allocation and tariffing; in other words, what we are obliged to charge our customers as well as what our interchange partner, CN, is looking to charge our customers.

A short line is totally at the mercy of its interchange partner — in our instance, CN — for car allocation. This winter, car allocations have fallen miserably behind. To give you an example, we at Battle River Railway have orders in place for shipping weeks 31, 32 and 33, which are the first three weeks of March. We were to receive 50 cars per week for each of those weeks. We are now entering week 42 and we still have no indication when or how the backlog for those cars will be cleared up.

There is one other thing I might say. The Battle River Railway, as other short lines on the Prairies, is unique. We are farmers and we also own the railway, so when I speak, I'm usually wearing more than one hat. From a railway operations perspective, my goals or objectives, if I were purely a railway, might be slightly different than if I were a railway operator as well as a farmer. So I am a farmer and have that vested interest, and I'm also trying to move my own grain on our own short line.

Now, when the federal government implemented its performance requirements this spring, the problem of car allocation for short lines was actually made even worse. Big rail merely sent more cars to big and near-to-port shippers to give the illusion of increased volumes of shipment. Short lines have suffered. Saskatchewan has suffered, because the majority of the Saskatchewan terminals and inland grain allocation facilities are farther from ports.

The legislation should have read that CN and CP were obliged to try to move more grain but also to distribute that movement in a normal pattern. Otherwise, there are major winners and major losers. The car allocation system needs to be more transparent and reliable for all players in the grain loading business to be able to perform their service.

Also, the opportunity for smaller grain players to be able to grow their business is crucial. It appears that big rail is recently allocating cars based on past business volumes. At a time when many issues have surfaced in rail movement that make it difficult for the rail people to accommodate the service they talk of, the opportunity for a small player to grow is seriously curtailed.

The second major issue facing short lines is tariffing. The tariffing issue is not nearly so critical in grain traffic, but it is hugely important to a short line in order to attract other business. You're all aware that oil has been moving on rail lately. At Battle River, we are in proximity to be able to offer a service to leaders in the oil business to move their product. Monitoring, or at least creating an appeal mechanism, must be put in place to give short lines the opportunity to attract new business.

I will give an example. We at the Battle River Railway feel that we should be partners with CN. It would seem if you buy a former CN sub, we should automatically be a partner. We can offer the most competitive rates imaginable to attract new business, but if CN does not cooperate by offering a competitive freight rate from the interchange point to the final destination, the short line has no way to attract new business.

I am trying to make the point that giving groups like the Battle River Railway an opportunity to purchase a short line is just part of the overarching issue of providing a service in the country. The other part is trying to make it possible for the short line to play the transportation and accumulation game.

That concludes my presentation. I would field questions if questions were forthcoming.

Senator Mercer: Thank you, gentlemen, for being here.

Mr. Tweed, when does the ice come out and when are you able to move?

Mr. Tweed: Traditionally, our first shipping would be between July 12 and 16.

Senator Mercer: You talked about the increase of capacity at Churchill. Give us some numbers here.

Mr. Tweed: Basically, by changing our transloading system from our port to not only from the grain cars but also to the vessels, we've been able to cut our times in half. I'll use October simply because it was a good month for us. We did 310,000 metric tonnes, and that was attributed to a steady supply of grain cars coming in and basically working about 17 hours a day.

Senator Mercer: And switching from 16 to 24 hours will —

Mr. Tweed: We're hoping it will add another 30 per cent.

Senator Mercer: What is the status of the rail bed coming up to Churchill?

Mr. Tweed: Actually, that's always a question that people ask. Thanks to the federal and provincial governments, and through OmniTRAX, we have invested $110 million in the tracks in the last eight or nine years. We have one 75-mile stretch, the last 75 miles, over tundra, and it always is a challenge, but I'm proud to say we're in our third year without any main-line runoffs or any incidents where there has been any damage caused. We believe it has improved to a point where we continue to invest anywhere from $6 to $10 million per year just in maintenance.

Senator Mercer: Hopefully that's not because it's still frozen.

To our friends at Battle River Railway, the cooperative model is an interesting one. You talked about more transparency, but you also talked about the lack of cooperation with CN. Do you see an overall plan — perhaps Mr. Tweed can comment on this as well — for the movement of grain products and other farm products at all? We've made some major changes here, but we're in a situation where we have a bit of a crisis going on now. Is anybody coming up with a plan that's going to solve this problem not just this year but in the long term?

Mr. Eshpeter: We're not aware of any plan. We haven't been asked, as a short liner, to submit any ideas about how this confusion or lack of service can be remedied. We have some ideas. A whole number of issues here need to be addressed.

Mr. Tweed: For us, if we get the service agreement allocation of cars that we are supposed to, and if we can start them moving in July instead of May, again, we're not the answer, but it's a solution that we're putting forward in order to move more grain and in order to grow the business. We've made investments, as I said, in a new loading facility at The Pas. The company has leased cars. We're moving product up there right now to prepare us for the season. A bigger picture plan would be ideal, but right now everybody seems to be acting very independently of each other.

Senator Mercer: That was a discussion of the future. Can you look back for us for a moment, recognizing the fact that we've got a huge crop this year? I'm not one who thinks that we wish for the same size crop next year. I want a bigger crop next year. I would like this to be the baseline for the future. Looking backwards, has the service deteriorated or improved in the last couple of years?

Mr. Eshpeter: It's a little bit difficult to say because with the elimination of the Canadian Wheat single desk, we didn't see a lot of these transportation issues. Now that it has become kind of a free-for-all, we are thrown right in the middle of car allocation and trying to get good service from our partner, CN.

We do know that as a result of the Canadian Wheat Board single desk not being out there for farmers, the basis that we can offer to move grain has gotten more favourable for us. Farmers in our area are seeking the Battle River Railway out as a means to move their grain, but when we can't get appropriate car allocations to do that, we are really hampered in terms of trying to expand our transportation business.

Senator Mercer: In the past, the Wheat Board helped solve some of these problems that you're having now, again recognizing that there is a much larger crop?

Mr. Eshpeter: Absolutely. The Canadian Wheat Board, in conjunction with the Canadian Grain Commission, was very instrumental in determining the allocation of cars and where those cars went. They were involved with what you would call the orderly marketing of our system. We don't have such a beast any more. We need to get all the players and the industry together to determine how we're going to orderly market these commodities.

Senator Mercer: Thank you both.

Senator Plett: I need to at least get my plug in as well. We wanted to have some farmers come out and be witnesses here today. They're all out there enjoying the freedom they have in marketing their grain, so the individual farmers haven't been able to make it. It's great to see that the Western Canadian farmers have freedom to go and plant 2 million more acres of wheat the last year than they did the previous years.

You both have talked about the allocation of cars. Correct me if I am wrong, but I think you said that you moved about 7,000 carloads last year. A couple of questions: How many carloads would you be able to move if you were given the allocation that you would like to see as a result of this legislation, and with the interswitching and so on? How much could you increase?

Mr. Tweed: Again, service agreements are important and we believe in that. Part of our solution or proposal is that we would not even need our allocated amount, as far as the agreement. What we would need is the timing of the delivery of the cars. We could probably do very well with 10,000 cars this year.

Senator Plett: Ten thousand? What happens to the Port of Churchill if CN gets their back up here and doesn't allocate the cars that you need? What would be the negative impact on the Port of Churchill?

Mr. Tweed: Well, senator, you know that I'm always a positive person. I'm convinced that we'll hammer out a deal with CN. It has been a challenge, but I understand they have been regulated or mandated to deliver and they're trying to do that.

We employ about 300 people. More than half of them are First Nations, Metis, Inuit, and I would say that without the allocation of cars, we would have to take a hard look at whether the port would open this year.

Senator Plett: For those of us from Manitoba that have fought hard for that port, that would be a devastating thing not just for Manitoba generally, but certainly for First Nations people and so on. Hopefully the railway will come through.

I have one last question for you, Mr. Tweed. With the interswitching that we have, can you give us an overview on how much farther you have been able to go out and pick up the grain as a result of the access to elevators? As well, will the interswitching allow for a larger capacity of grain to be brought in from south of the border — you said you own some railways there — into the Port of Vancouver and so on?

Mr. Tweed: I think the big challenge with the allocation and the interchange — and I think our other witness would agree — is that without the allocation, the interswitching has no value because we would still rely on CN to provide those cars at that interswitch.

We recognize the limitation that's on it now gets us to Hudson Bay, and we recognize that that's a big grain growing producing area. We've discussed, on our Carlton Trail in Saskatchewan, where we would actually put producer loading facilities to engulf the product that's out there. But it's kind of like saying the kids don't go to school if the school bus doesn't come by and pick them up. That's the dilemma, and I suspect that's the dilemma that all the short lines are having.

As I said earlier, when you introduce regulation, sometimes there's an outside effect that you're not prepared for or not thinking about. And with the gun to CN and CP to deliver X amount of cars every week, that's what they're going to do. I respect them for doing that but in the same breath, it impacts some of our smaller players and we're part of that.

Senator Plett: Let me ask both of you a question. I think this is relevant since you're both talking about the allocation of cars. What we have seen, and I think you've alluded to, is that the railways are starting to collect what they would consider easy grain. However, as those elevators are emptying out and they have to reach to other areas, they will be reaching to short lines and elevators farther away. The mandatory volume requirements are forcing the railways to do this as they will need to make their quotas. They won't be able to make their quotas if they just continue to go after the easy stuff. They will have to reach out further, and would that not force them to allocate cars to you? I would like to hear from both of you on that matter.

Mr. Tweed: I think eventually that will happen, if we only have an average crop next year. For us only, because of our limited time — getting cars in late fall, October into November and December, when they still can move grain everywhere else in Canada — we lose our ability to do that. Ours is very time-constrained in the sense of July to mid-November. That's our season, and we need to make it then.

Senator Plett: Because of the Port of Churchill. How about for our friend from Battle River Railroad? I don't think you would have the same challenges that Mr. Tweed is talking about, so how would that affect you?

Mr. Eshpeter: It's an interesting phenomenon you speak of because in a year that we just experienced where we have a lot of grain on the Prairies, CN always seems to think that winter is a new phenomenon. If you are a farmer or in the grain loading business, you have to appreciate that CN is always caught off guard when winter comes, and this year was even worse than normal.

The gentleman that posed the question is absolutely right. Over time, the cars will be allocated to those areas where the grain has still not been picked up. But if you have a big year and there is going to be grain left in significant volumes on the Prairies, it's going to be in those places that are serviced last because there is no formula that would suggest everyone should be apportionately serviced.

Senator Plett: CN is coming next, so if this winter will ever pass, in parts of our country, we will assure them that it will be coming again.

Mr. Eshpeter: That would be very nice.

The Chair: Thank you. I noticed that that was not a question.

Senator Tardif: My question is to either or both of you. Do you feel that this bill will give short lines access to fair contractual agreements with the two railways?

Mr. Tweed: I think those are two different issues. We believe in having contract agreements, and having access to those switching rights are totally different in the sense that I know the major companies don't want that to happen. Maybe it will enhance the negotiating on the contract side, but I don't think they're relevant together.

Senator Tardif: Ken, did you want to comment on that?

Mr. Eshpeter: Could you repeat the question, please?

Senator Tardif: You both mentioned the importance of car allocation and access to cars, so do you feel that this bill will give short lines access to fair contractual negotiations and arrangements with the two railways?

Mr. Eshpeter: I'm not that familiar with all of the details of the bill we're discussing. I am hoping that someone who is doing research and having input into the creation of the bill would have been aware of some of these issues that short lines face, but not having actually read the bill, I'm just hoping at this stage.

Senator Tardif: Thank you for that.

Do you feel an opportunity was lost in the fact that no mention is made in the bill in regards to short lines and producer cars to perhaps provide farmers with more alternatives for transportation of their grain?

Mr. Eshpeter: I will speak to that. I can easily do that. Producer cars are a vital service to actual farmers on the Prairies. The opportunity for farmers to access them is a hugely important issue.

To give you an example, last year we moved 720 cars of grain on our line, and since deregulation and the situation whereby every farmer and every grain company has to find a way to find its own customers, we have, on our books, 2,000 cars. Had cars been available this year, we probably could have moved 3,000.

There is a tremendous need for this opportunity for farmers to access producer cars, so if they're not mentioned in the act to any extent, that's a huge shortfall.

Mr. Tweed: I would say that the intent, when the bill was introduced, was to address that issue in the sense of allowing train companies to go farther out and bring the product in. But, to me, it's not so much about the switching; it's about the product availability of cars.

If we get the cars, we can get the product, no matter how far we are allowed to go, but if we don't have the car allocation, again, we just lose all ability to go to market.

I think the intent, though, was for that.

Senator Tardif: It's not in the bill, so I was wondering if that would be an amendment that should be in the bill with regard to the whole short-line issue.

Mr. Tweed: I expect you won't hear that next.

Senator Tardif: Probably not.

[Translation]

Senator Maltais: I have a short question, Mr. Chair. Mr. Tweed, is your company a railway owner?

[English]

Mr. Tweed: Yes, we are.

[Translation]

Senator Maltais: Did you build them all or did you buy them from existing rail lines?

[English]

Mr. Tweed: We bought them from CN in 1995, 1996. The railway is 100-plus years old.

[Translation]

Senator Maltais: Mr. Tweed, have those railways been subsidized by the federal government in the past?

[English]

Mr. Tweed: Yes.

Senator Robichaud: Mr. Tweed, you said that you tried to come to some kind of understanding or agreement whereby some cars allocated into a period would be used not by yourself but by others so that you could use those cars in the period where you can transport and deliver grain. That couldn't work out?

Mr. Tweed: What happens is that in the shipping months of May and June we get an allocation of so many cars. Because we can't ship the product to the port and then out, we tend to plug the elevator, and we wouldn't be able to use that many cars.

We're suggesting that instead of front-ending us with X amount of cars, move them back into the system. Let them be used, and then in late July, August, September, October, move them back into our system where we actually can cycle them back through on a regular basis and build our volume. I guess, at the end of the day, more grain moves out of the country.

Senator Robichaud: But why can't you get that kind of a deal?

Mr. Tweed: It's all part of negotiation. Again, I know that CN and CP are obligated to meet a certain target every week. They're mandated do that and they'll be fined if they don't. So the challenge is for them to achieve those obligations first and then look at the secondary markets.

We just feel that because we have such a short season, we need the right volume, but we just need it at a certain time. Any time throughout the rest of the year, we'd be happy to see them go back into the main system.

Senator Robichaud: Are there provisions in this bill that prevent them from doing that?

Mr. Tweed: No, it's a negotiation.

Senator Robichaud: It's negotiation.

Mr. Tweed: Yes.

To be fair, historically, we would take those grain cars in May, simply because we would build up our volumes at the port to be ready for the shipping season. What has happened is that we're full, like a lot of elevators, and they have no place to move it. Once we start shipping, with the 24-hour shift, it will be a busy time, if we get the cars.

Senator Robichaud: But you're full at the port.

Mr. Tweed: We will be full in probably another 10 days. We're moving product up there now.

Senator Robichaud: But you'll still be allocated those cars even though you're full.

Mr. Tweed: Yes. That's the challenge. We have to show our position and make out point clear, but I also understand that when you obligate a company to do something, that's what they're going to do first because they face severe fines if they don't. So our challenge is to get in front of them and just make sure that we get it when we need it.

Senator Robichaud: Quite a challenge.

Mr. Tweed: It is.

Senator Robichaud: Mr. Eshpeter, you mentioned an appeal mechanism that is not present now. Is that appeal mechanism in relation to car allocation? Is that what you're saying?

Mr. Eshpeter: Not specifically. I was talking more about tariffing, but it wouldn't be a bad thing, perhaps, to have an appeal mechanism regarding car allocation also.

The whole industry is really in an interesting or maybe even peculiar position in that we are creating ways for municipalities and farm groups to get involved in short-lining, but then we're expecting those groups to compete with the main players. That's really difficult. So if something comes up whereby a short line is unable to compete in that environment, there should be some way that we could appeal to an appeal group that would understand the situation and make it possible for the small player to play.

If the small player isn't given an opportunity to play, don't give him an opportunity at all because we're just going to lose a bunch of money by buying track that we're not going to be able to use.

Senator Robichaud: But that could be done at a later date, then, couldn't it?

Mr. Eshpeter: Setting up the appeal, you mean?

Senator Robichaud: Yes.

Mr. Eshpeter: Which?

Senator Robichaud: Not through this bill.

Mr. Eshpeter: It's never too late because we have nothing now.

The Chair: Thank you, Senator Robichaud.

[Translation]

Senator Dagenais: My question is for our two witnesses. The Canada Transportation Act promotes competitive access to other rail services. In the past, interswitching was limited to 30 kilometres. Correct me if I am wrong, but the interswitching limit is now set at 160 kilometres. What do you think the maximum interswitching distance would be to allow a shipper to have competitive access to another railway company? Can you give an example of a situation where a shipper would prefer to have competitive access to other railway companies? Both witnesses can answer the question.

[English]

The Chair: Mr. Eshpeter, do you want to comment on that question?

Mr. Eshpeter: Who would you like to address it first?

The Chair: The chair is asking you, sir, if you want to comment on that question.

Mr. Eshpeter: Yes, I would, gladly. Thank you very much for bringing that up because we, at Battle River Railway, are in a unique position in that we are a former CN branch line, but we are only three miles away from an interswitching situation with CP. We on the Battle River Railway would feel that this new regulation about extending the boundaries for the opportunity to interswitch will have a potentially major advantage for the Battle River Railway. We don't know yet how this is going to happen, so we're quite interested in finding out how it will happen from a logistical and practical perspective; but we think it has a lot of potential.

A hundred and sixty kilometres seems like a pretty reasonable amount of space, and we're happy with that. I can't speak for other short lines. Everybody's in a unique situation.

The Chair: Thank you. We will conclude with Mr. Tweed on the same question.

Mr. Tweed: Obviously, whenever you open it up, the further away you go the more attractive it is to a short line, for sure.

Looking at the map, the new regulation would take us to Hudson Bay. Kenora-Saskatchewan for us would be ideal. We would be prepared to power it to provide the engines. Again, we want to work with our partners, and that would probably be a difficult challenge for them and for us to achieve. It's a good question.

The Chair: Mr. Tweed and Mr. Eshpeter, thank you for accepting our invitation to share your comments and opinions with us.

We will now hear from the third panel on Bill C-30, the proposed fair rail for grain farmers act.

[Translation]

That said, honourable senators, joining us is Claude Mongeau, President and CEO of Canadian National.

We also have Robert Taylor, Assistant Vice-President, North America Advocacy, Canadian Pacific.

[English]

I have been informed that Mr. Mongeau will make the first presentation to be followed by Mr. Taylor. I will then ask senators to move to questions.

Mr. Mongeau, you have the floor.

Claude Mongeau, President and CEO, Canadian National: Thank you, Mr. Chair and honourable senators. I have a short presentation that I plan to go over and then I'll take questions.

Let me start off by saying that it's obvious this year we are facing what I would call a perfect storm. I'll give you the contour of why I believe it is a perfect storm. We are definitely dealing with a difficult situation. The amount of expectation in the grain-growing sector and in Western Canada in general is huge. The capability of the whole supply chain, not just the railroads, is not sufficient to meet all the needs and expectations. As is often the case, unfortunately more so in grain than in any other commodity, we quickly get to advocacy and finger-pointing. Unfortunately this year, the finger-pointing went very high up, all the way to the Government of Canada, which decided to single out the railroads and come forward with a bill that is largely targeted at railroads for reasons that I believe lack balance and perspective. Before I elaborate on that, let me first give you a few key facts.

In a world of advocacy, you hear a lot of people making a lot of interpretations. Let me tell you what this difficult grain crop situation is not about. It is not about a competing demand with crude oil movement. We move only 2 per cent of our carloads with crude oil. Every one of those carloads has been well planned for. We know the loading facility. We've hired the crews. We've bought the locomotives. If we didn't have the customers, we wouldn't have the assets. We have the customers and the assets and are moving 2 per cent of our overall volume in crude.

It is easy to make railroads look bad on crude oil these days, but it's not at all part of the problem. We're doing good stuff for Canada's energy market in this regard.

The other aspect is you heard other commenters earlier talk about big bad rail — could have been just as easy to say even in the Senate meeting. The notion that we do only what matters to us, for instance we flat line, don't have any surge in capacity and take it when we want on our terms with every week the same, no difference, is not the problem.

In fact, you see on the first chart that I gave you that we surge dramatically in most years. Typically, the difference between the movement of grain we move in the fall and in the summer is simple. There's an 80 per cent difference. We normally have way too many assets most of the year, and we have enough assets to surge during the fall period.

Of course, as you'll see in a minute, we don't have enough to surge to the level of a 100-year crop, but we do surge all the time. We do try to follow the demand of the market to the best of our ability. That's what our shareholders' interests call for. The more grain we can move and the most efficient we are, the better for us.

If it's not about a self-serving strategy, and if it's not about crude oil, then what is this difficult situation all about? It is first and foremost, on the second page, about a 100-year crop. I won't dwell on the statistics, but it is what it is. We have never, ever produced as much grain in Canada, and not by a small margin but by a huge margin. The crop at 76 million tonnes is a full 30 per cent bigger than ever in the history of Canada. Now, you say 30 per cent is a big number. It's huge. But all of the excess production doesn't change domestic consumption. So everything that is excess wants to move to export. The actual export program, which is what calls on rail, is a full 50 per cent bigger than an average year.

Percentages mean nothing. Fifty per cent is a huge number, but 50 per cent is 22 million tonnes of product. For CN — my colleague at CP carries the other half — that is half of 22 million tonnes. That is 10 million tonnes-plus of grain that we have to find a way to move, and we found out about the crop only very late in the process, as late as September. The Minister of Agriculture — the same minister who wrote the bill, mad at the railroads — his own department, at the end of the December, was still calling for 61 million tonnes. We ended up with 76 million tonnes. We moved 61 million tonnes, no sweat. We did it two times in the last 10 years. We don't move 76 million tonnes under any circumstances. Even if the railroads were levitating, we couldn't, because the supply chain, railroads and grain elevator companies, are not designed to move that much grain.

Ten million tonnes is twice as much as all the potash we move. It is more than all the lumber we export out of Canada. It's almost as much as all the coal that we export from Canada.

If you assume we do a reasonable job and we have the right assets, plus or minus, to be able to surge, to deal with normal volatility, which we do, we would have enough assets to go from 57 million tonnes to maybe 61, 62, 63, and do a good job.

But if you have 76 million tonnes, the only way we could find out would be to displace other commodities, and that's assuming that we have the other parts of the supply chain able to ramp up with us, which, as I will show you later, is not the case.

The railroads are not defining the supply chain capability. The railroads have been blamed this year for falling short during the winter, but we do not define supply chain capacity, and we can only be as good as the collective ability of rail and grain elevators.

This leads me to the second issue, which is a very real one. It makes up the perfect storm. We faced the worst winter in decades. When I did this slide, I said decades. Today, I can say in a century. You have to go back to 1893 in Western Canada to find a colder winter. The shape of those curves shows you the extent of the difference between a normal winter, which is always difficult, and this year's winter, which was a winter of a lifetime.

Unlike what some people said earlier, we have absolutely full knowledge that winter comes every year, and we do a very good job at it most of the time, but we do have issues that are related to coal, which creates structural capabilities which are far more complicated to deal with than just saying winter comes every year.

With air brakes, when it's minus 25 degrees, we cannot pull air through our trains and move them safely, which means we have to shorten our trains. If it's cold every day for the full year, we may need as much as 30 to 50 per cent more trains. Of course, we don't have 30 to 50 per cent more locomotives, we don't have 30 to 50 per cent more crews, and we don't have 30 to 50 per cent more line capacity. So we don't have the capacity to meet all the demand — not for grain, not for potash, not for intermodal, not for crude oil, not for any of the commodities.

Other commodity sectors understand that. They don't go to Ottawa complaining, and we don't have royal commissions, and we don't have finger-pointing. We have honest, balanced discussion about the adversity that we face. Every year, we try to get better at it, but winter will not go away. The one thing we will change in the future is that we will be much more prescriptive about what it is we cannot do in winter so that people don't make the wrong assumptions and then blame us afterward.

So it's a hundred-year crop in a hundred-year winter.

Let's look quickly, because I want to leave time for my colleague, in terms of what we did for grain. The story is not at all what you hear, not from the Minister of Agriculture and not from grain stakeholders. The story of the facts is the following: I told you this crop became known as a hundred-year crop fairly late. In the first five weeks, the grain elevator companies used us far less than in any prior year. We had all sorts of capacity. We could have moved 5,000 cars a week. They only called on us for a few thousand. We could have moved 10,000 more cars if they had had the insight to actually start moving. Now they're blaming us. At the time, they could have actually used us and we would have moved the grain. Remember this number, 10,000 carloads.

Right when it became clear an order shot up that we had a big crop, we moved to a record spotting level. In fact, from week six to the beginning of winter, we moved 27 per cent more grain than on an average grain year. We moved more grain than ever in our history. We established eight weeks of records in a period of 15 — record performance. We surged. We did everything one would expect. In fact, at the time, even the Minister of Agriculture was saying we were doing a decent job.

Then the winter of a lifetime, of a century, and right there on the chart you see it. The first week of December, our performance got crippled, not just for grain but for potash, for intermodal, for crude oil, for every commodity. We were not able to move the equivalent of an average for a prolonged period of 12 weeks. In total, the shortfall for the winter is 10,000 carloads. We lost 10,000 carloads because of a crippling winter. They lost 10,000 carloads because they were sleeping on the switch. We're even.

Since then, it's not the government order; it's the fact that winter broke away. We are moving a new record. We're moving 41 per cent more than average. We have established since week 31 to week 40 another eight weeks of record performance in our history. We have never moved more grain.

Importantly, we are moving as much grain as the elevator companies are able to unload. They are telling us to slow down in Prince Rupert. They're not unloading because they're almost full in some terminals in Vancouver, and they're full to the neck in Thunder Bay. We have icebreaker problems because the icebreakers are not able to open the channel, or they just have lately.

We have moved more grain year-to-date than ever in our history. We moved a record crop for Churchill in the fall. I heard the love earlier from Merv Tweed: A record crop for Churchill this last fall. We are moving a record amount of grain. We were impacted by a tough winter.

The next page shows you the real problem, and it tells the story of the Battle River Railroad, in a way. We have far more orders than what the supply chain is able to do. I'm telling you, we are moving as much as grain elevators are able to unload. We are establishing new records. The bar that you see there, the light blue bar, is the best in the history of CN performance for the last 10 years. We are consistently improving on that, but the orders are as much as 38,000 above the best performance we ever did.

An order is an expectation for more cars. It doesn't mean it's possible. When it's not possible, we have to ration, and we do that very fairly. We do that on the basis of the historical use of our services. That's the way the Canadian Wheat Board would have wanted us to do it, and that's the way the Canadian Grain Commission used to do it. We're doing it because that's what makes sense. We're doing it in all territories with all customers, by customers, by type of group. We have moved more producer cars than ever in our history so far, and that includes the Battle River Railroad.

Quickly, advocacy doesn't move grain. Fourteen thousand cars are what the grain industry is saying they can do. They have difficulty doing 10,000 to 11,000 as we speak. We are going to have to get to a point where we understand that.

I will let my colleague continue and answer the question on why this legislation is not the right way to go when you ask me questions. That will save time, Mr. Chairman.

The Chair: Thank you very much. We will ask Mr. Taylor to make his presentation.

Robert Taylor, Assistant Vice President, North America Advocacy, Canadian Pacific: Good afternoon, Mr. Chairman. You're going to see a lot of consistency with my comments and my colleague's.

Today I want to focus on supply chain capacity, how CP, despite exceptional weather, has performed this crop year, and why interswitching and other elements of Bill C-30 are not compelling solutions.

Specific to supply chain capacity, I'm not here to debate the new normal in crop sizes but would be remiss not to emphasize the fact that this crop is 37 per cent above the five-year average and is an exportable surplus. That means the amount of grain we have to move went from 33 to 34 million tonnes, to something like 55, 56 million tonnes. That's a Westshore terminal, a double Neptune terminal. This is an incredible crop.

From a capacity perspective, to look at just one component of the supply chain, i.e. rail, is completely unrealistic. This is a multi-component supply chain.

I would like to talk about our performance as well. As my colleague pointed out, there was a 9 million tonne carry-in to this crop year, which is highly unfortunate. There was capacity in June, July and August to move grain. In August, we at CP had 4,000 railcars parked; a real opportunity missed. That number for CP equates to the impact of the winter in terms of our fluidity.

To give a sense of our performance over that same period from September to November — and I use September because we didn't have grain to move in August — we actually moved 20 per cent more grain at CP than the five-year average, and 14 per cent more than last year. Last year was a record in terms of grain movements in Canada.

In December and January we got hit by extreme weather and there is no doubt that the weather was extreme. I'm not going to go through all of the statistics and metrics, but one important one: I think this year Thunder Bay was the latest opening ever — four weeks delayed at Thunder Bay. Thunder Bay is a very important gateway for CP. It's a very short cycle time for us. So a four-week-later opening at Thunder Bay gives you a sense of the extreme temperatures in the upper plains and the prairies this year. Minus 25 degrees Celsius is a real tipping point for rail operations, so a 30 to 50 per cent reduction in our capacity, largely because of safety, shorter trains and reduced velocity, because capacity is very much driven by velocity. This is a significant impact on our ability to operate in a fluid fashion, and it's not only seen at CP. If you look at Chicago, the upper Midwest, this is really a North American phenomenon this winter.

To put our performance in perspective, even with the extreme winter conditions, from September to April we moved 10 per cent more grain at CP this year than last year, which was a record.

There is one point I would like to make. Even in the face of this extreme weather, our employees worked tirelessly 24-7/365 to move grain. That is something that is not being matched by other partners in the supply chain. We would like to see more deployment of 24-7 in terms of port elevation and country elevation as well. A lot of the port elevation operates five, seven, or do not operate a true 24-7/365 operation.

In terms of expanded interswitching — and I will pull this up quickly because I know you want to ask questions — we do not see that being a remedy here. It's exactly the wrong thing to do. Extended interswitching will lead to multiple handlings of grain shipments and will slow down the supply chain, negatively impacting transit times.

In summary, if the supply chain is to do better we need to find a collaborative approach in the near term and in the longer term create capacity in the grain supply chain. This is how we will ultimately benefit the farming community and the Canadian economy.

The Chair: Thank you very much, Mr. Mongeau and Mr. Taylor.

Senator Plett: Thank you, gentlemen, for appearing here. I think we could have given you a two-hour time slot and we wouldn't exhaust the questions.

As you said, Mr. Mongeau, there has been a lot of finger-pointing here in the last couple of days, and probably by everybody that has been at the table so far. There's an old saying my mother used to have that if I pointed my finger at somebody, three fingers or four fingers were pointed back at me.

Quorum Corporation was quite supportive of the comment that you made that oil has not been the issue here. I asked the question. We have read that in the newspapers. Your answer was consistent with what you was said here today, and the gentleman here from Quorum said it exactly the way you did. He did not believe oil played into it in any way. But he did disagree with the comment that you made about the overloads at the ports. He said the ports were able to handle whatever you could ship them. Clearly, railways are a huge part of our logistics chain. It's just simply a fact of the matter, and farmers depend on you to deliver their crops to market. We understand that this is no small task.

You have said previously that ''it is now time for grain elevator companies to step up to the capacity they claim to have.'' To me, this is a little bit concerning because I think we need to collaboratively work together, and it's critical for all players in the supply chain to work together and take responsibility for their own gaps in performance. I guess this is where I refer to the finger-pointing coming from your company. It is critical for the Canadian economy as a whole, for our international reputation as a reliable supplier, and especially for our grain farmers.

My question, sir, is CN prepared to work constructively with grain companies and implement service level agreements? That will be a question for both because I understand that neither CN nor CP have signed a service level agreement with a shipper. If that is the case, could you explain why not, and are you prepared to do that?

Mr. Mongeau: First, the facts are that we have service level agreements with the majority of the tonnage that moves through. We have service level agreements, supply chain collaboration agreements with the largest grain companies. Most of these service agreements, for instance, eliminate the charging of demurrage. So between the advocacy on reciprocal penalty and lack of service agreement and reality, there is a big difference. The truth is we already have some, and we are already dealing with those that we have on issues such as reciprocal penalties and demurrage.

We are absolutely willing and ready. It's our mantra at CN to step up to the plate in a constructive manner. We tried to do this with the Minister of Agriculture. We did that with each of our customers independently on a commercial basis. But during the winter there was a tsunami of finger-pointing, looking for the culprit, and we lost total control of the agenda, I'm afraid to say, because it was more important to find the culprit than it was to look at the facts. The facts are the ones that I told you. We have moved more grain than ever in our history. We have allocated the grain cars that we did fairly, so everybody got more grain cars than ever in their history. If winter had been easier, we would have done even better. By the time the year is over, we will shatter the record for a crop year by some 10 to 15 per cent. That's a sure thing with 12 weeks to go.

Mr. Taylor: We have commercial agreements in place with the vast majority of our customers. We have commercial agreements in place with the grain companies. I think there is a lack of understanding about what reciprocity really means, and if we're going to allocate railcars, locomotives and crews, I think the onus is on a customer to have some clarity in the traffic offering. I can't knock on my competitor's door and expect him to eat steel and spit out a locomotive tomorrow. If he has some guidance on a traffic offering, then he can give some additional guidance, on a reciprocal basis, on what he can do. If a customer would actually give us a firm commitment and if that commitment had some granularity in terms of an origin, a destination, a car type, then we could step up to the plate.

There is a lack of understanding by some, not by all. I think that in the commercial world it's better understood in terms of what reciprocity really looks like. We cannot have these assets that have 40-year lives that are very expensive — we're extremely capital intensive. At CP, we will spend $1.2 billion to 1.4 billion this year, again, in ''cap ex,'' on revenue of $6 billion. We have to use these assets effectively. We can't sign an agreement that is just one-sided, where the onus is only on the railway and there is no onus on a customer in terms of tendering traffic.

Senator Plett: We clearly have a situation that was unique this year. I don't think anybody has ever disputed the fact. We all felt that the winter was harsh and long. My wife wrote to me from Winnipeg this morning and said that there was snow on the ground. In some areas, the winter isn't over, even though it's probably not detrimental to rail traffic any more.

We talk about climate change all the time. We have a friend and senator who talks about global warming. It didn't feel like that was anywhere in sight last year, but certainly there is climate change. Winters are colder. We have changes. Yet, we will have crop increases. Maybe it was a record crop, but we have been increasing by, I think, 3 per cent a year for the last number of years. That will continue. Those of us in Western Canada, in the Prairie provinces, are hoping that these bumper crops will be there again next year. We certainly don't hope the winter will be there, but there is a chance that it will be.

Given that, we have two scenarios. One is that we don't have a harsh winter; then, I take it that we don't have a problem. You can handle the grain if we don't have a harsh winter. If we have a harsh winter, we will, if we have the same type of crops, be in a predicament. A government can come along and say, ''You have to move a million tonnes a week.'' If that is physically impossible, you won't move a million tonnes a week, but what are you doing to possibly assure Western Canadian farmers that you are doing something about the issues, i.e., air brakes that you can't operate at minus 25 and so on? What are you doing to possibly assure them that, if we have that harsh winter again, you will be able to meet the requirements?

Mr. Mongeau: There are two parts to your question. On the winter, we can improve the way we deal with adversity year after year, just like everybody does. The fundamental, crippling impact on capacity that comes with cold weather is not a problem that is easily fixed and it's not a problem that CN or CP controls. It's a North American rail industry problem. All the cars that move in free flow across North America are based on the same technology that's impeded in winter.

Typically, in Canada, it's for six weeks. For most of the other railroads, it's for two weeks. No other railroad has an incentive — I'm not even sure that it would be economical for CN, even with six or seven weeks of winter — to change over the entire technology to be able to address a very short period, which, in most years, creates a bumpy ride but doesn't create, like this year, a crippling impact on capacity.

We would need to have half a million cars in the North American rail industry changed over to a new technology — new locomotives, new breaking system. You would have to come with us to San Antonio, Texas, to convince our colleagues to make billions of dollars of investments to change the technology that we have. That's why I say that winter comes every year; it's not going to change. We can improve at the margin, but the impact of winter on railroads is a structural issue.

On the crop size, it all depends on what we are trying to shoot for. We want more growth. We want bigger crops. The question is: Are we prepared, together, to invest to face a hundred-year crop, and are we prepared to put the assets behind it? Is the Government of Canada willing to buy 10,000 hopper cars in case we have another 100-year crop next year? If we don't, what do we do with the cars for the next nine years?

The Chair: Mr. Taylor, do you want to add anything?

Mr. Taylor: It's important to understand the efficiency of the system. We're moving a tonne of grain from Winnipeg to Vancouver to an export position for, say, $35, $36, $37 a tonne. So we move product for cents a tonne mile. It's not FedEx moving an envelope for $14, and the guy is sitting around the corner waiting for you to call. If people want to have additional surge capacity and want fleet renewal, then we're going to have a dialogue on who is going to pay for it. You have to remember that it's also a regulated revenue regime. We have revenue regulation in Canadian export grain, and I think that these are all elements of an educated dialogue.

Senator Plett: I'll be very brief with my last question, Mr. Mongeau. I'm from Manitoba and this question relates to Manitoba. Will CN be able to allocate the proper amount of cars to OmniTRAX in order that the Port of Churchill will not adversely suffer, with the port having to close and people being laid off?

Mr. Mongeau: Thank you for the question. We just did an all-time record for Churchill, so between an all-time record and job loss, there is a difference between facts and advocacy. We will do our very best to continue this year to give them the record.

Every time we send cars towards Churchill, that means there will be fewer cars available for other grain farmers because the cycle times are much longer. We will have to find the balance, but you have to decide whether you want more grain moved for farmers or more grain for the railroad that you like that is a little bit less efficient?

Senator Plett: I like the Port of Churchill.

The Chair: Mr. Mongeau, you've made your statement, and we appreciate that.

Senator Plett, you've had your answer to your question.

Senator Mercer: Would you like me to talk about the Port of Halifax?

Mr. Mongeau, you said that you found out late about the problem. I guess my question is: How come? We heard earlier from other witnesses that they identified the problem in October. I would have thought that, for a customer as large as the grain shippers in Western Canada, you would have someone monitoring what's going on there and trying to anticipate the needs, trying to forecast how many cars are going to be required. What was missing in responding to the crisis that we faced?

Mr. Mongeau: People have very selective memories, I would say, because, in actual fact, not only did they not know but also they did not move crop for the better part of all of August and the beginning of September. They did not know for sure. Otherwise, they would have moved crop, or they were playing fire. That's number one.

Number two, the time frame within which we need to know to add not just cars but also locomotives and crews is six to eight months in advance. So, in effect, if we want to decide how much capacity we will have next fall, independent of where the crop will be — it's not even seeded — we need to make a determination now because it takes six to eight months to hire and train a crew. It takes about 12 months right now, sometimes nine, to bring on a locomotive. Cars, depending on whether they are available or not, can be from five to six months. You need six to eight months lead time. You need to place your bet in the winter or fall, prior to the crop being seeded. That's why we typically do it on an average trend yield, with the ability to move up or down but not to address 22 million more tonnes like we did this year. But they did not know themselves, otherwise they would have moved. Even if we had done so, we could have only done what we did this year — line up resources for the spring. Six to eight months later, we've added a thousand cars, the locomotives and crews to be able to flex to where we are today at 5,500 to 5,600 cars per week, which is an all-time record.

Mr. Taylor: I don't have a lot to add to that, really. There are considerable time lags and you have to ensure that you can utilize those very expensive assets at a high level. Last year, for example, we started parking cars in May. I can't opine on it, but where the crop comes in next year is anybody's guess. In a typical crop year, we have a high fall peak, by May, we start parking cars, by August we have a significant portion of our fleet parked, and then the crop comes in and we start moving again.

Senator Mercer: I would suspect that this August you'll still be moving this year's crop.

Mr. Taylor: Yes, we will.

Senator Mercer: You won't have as many cars parked.

Mr. Taylor: No, we will not have cars parked.

Senator Mercer: I have a problem that is related to you because you're a victim. Somebody said a moment ago that the ports could handle the load when you get there. You've got to convince me that Vancouver and Prince Rupert can handle those. We've heard from Churchill that they have increased capacity and are anxious to increase it, and good luck to them. But the Port of Vancouver has consistently not been able to handle it. A witness told us earlier that before the order-in-council, there were 38 ships waiting in Vancouver and 17 in Prince Rupert. That dropped after the order to 24 and 7. Any ship waiting is one too many for me. If you get the product there, they should be able to get the ships out of there. Is the problem with shipping grain, as with many other products, the Port of Vancouver?

Mr. Mongeau: Let me just briefly talk about Prince Rupert, where there are five ships with tonnage at the port. They need cars effectively for six days of unloading. In supply chain terms, we're in perfect balance. Six days is not an issue. We are in perfect balance with Prince Rupert and there are five ships at berth. Prince Rupert is asking us to make sure that we balance things. They don't want it faster. We are at the perfect speed. We are on top of them.

At Vancouver, we're on top the same way. At Thunder Bay, they're full. Churchill can't do anything at the moment. We are on top of every port at the moment, to the point that the western grain elevator advocacy thinks we should be sending it to the U.S., Mexico, wherever. The truth is not going with their advocacy; it's where they want us to send the cars. That's okay, as long as people understand that when you send the car towards Mexico, you will take three cars to move the same tonnage as you can send to Thunder Bay. There are no more cars. We just have to decide whether we want to move tonnes to help farmers or we want to spread the volume to fit with the advocacy of the grain elevator companies that are trying to say they have more capacity than they have in reality.

Mark my words: By the time the facts come out, the true supply chain capacity is somewhere in the vicinity of 11,000 cars on a weekly basis — both railroads. We have been doing that for the last five years. We are on top of the grain elevator capacity.

Senator Mercer: We are all frustrated by the situation this year and obviously the large crop. I've been confused about why the lack of coordination in the allocation of cars is happening. What was the situation in the past? Let us go back a year or two. Was there a better method for the allocation of cars?

Mr. Mongeau: I would say a greater role was played by the Canadian Wheat Board in levelling traffic on an annual basis. There was a different marketing strategy that involved pooled grain and more ability for delivery into the farming country elevator system. That's part of the issue in terms of the pain out there as a lot of farmers have been left out that have no cash. That's a problem. It's not just a railroad problem; it's a railroad problem in grain marketing strategy.

The way we allocate cars, the way the actual efficiency of the supply chain works, the fact that we have a more commercial system with fewer players, and the way we allocate ourselves is not too different from the Canadian Wheat Board; so there's no change. It would have been difficult under any scenario. It was very emotional and advocacy driven this year. I think the gain is as much about putting the onus on the backs of the railroads as it is to convince the government to do what it did: Change the rules to get more regulatory leverage.

Senator Mercer: You talked about a service level agreement and about trying to talk to the government. You said that the Minister of Agriculture, instead of talking about service level agreements wanted to talk about pointing fingers at the railroad. I don't necessarily remember that.

Mr. Taylor, you talked about commercial agreements. I'm confused. We're used to dealing with the term ''service level agreement,'' which was the language in Bill C-52, I believe it was. You said ''commercial agreements.'' Is that the same as service level agreements?

Mr. Taylor: Absolutely. ''Service level agreement'' was actually coined by the Rail Freight Service Review panel a few years ago. The CTA really contemplates commercial agreements and confidential contracts. There is a new remedy and there has been a constant layering on of remedies in the CTA over the last number of years that allow a tariff shipper to avail of an imposed confidential contract, which people call a ''service level agreement.'' All of these agreements are really confidential contracts or commercial agreements, and people use different nomenclature.

Senator Mercer: We heard from a witness earlier today, when I asked a question, who indicated that service level agreements were costly. I asked what he meant by ''costly.'' He said it could cost up to $100,000 to conclude a service level agreement with the railroad. Since we've had service level agreements in the legislation now for a couple of years, have you looked at the efficiency of how you're reaching those agreements with your shippers? You're dealing from a position of strength. A small shipper has only one railroad to deal with when negotiating a service level agreement. Do you look at the fact that it's costing your suppliers a lot of money to reach these agreements with you?

Mr. Mongeau: I have two comments. The first is that we have had as much if not more difficulty serving other commodity sectors as we've had with grain. Did you hear any other commodity sector complain the way we saw with grain? No.

What we hear in grain is a confluence of regulatory lawyers and grain advocacy. We don't have any small customers in grain. We don't serve farmers. We serve grain elevator companies. The largest three grain elevator companies control 65 per cent to 70 per cent of the market. We have very few, very large asset-based customers, and they are very sophisticated. They are very good at putting themselves on the side of farmers and pointing the finger at the railroads and asking the government to provide them with regulatory leverage; but they're no different than any large customer. There is no impediment to doing commercial agreements with them apart from the intricacies of grain. The revenue cap is not conducive to reciprocity. It's a pay-as-you-go system. It's not easy. In other sectors it works; but in grain it's more difficult for historical and structural reasons.

Mr. Taylor: Policy-makers have to keep in mind in terms of rail that it's a bus route; it's not a taxi service. We move one tonne of potash from Saskatchewan to export position at Neptune for about $20. We move one tonne of grain for $35 because we're a bus route. If you have arbitrators willy-nilly imposing service on the bus route to the benefit of one customer and the detriment of another, you're going to seriously erode the efficiency of this system. Although you'd never know it over the last three or four months, but we have some of the best railways in the world here in Canada. You need to be very careful in terms of imposing service to the benefit of one customer and the detriment of another.

Senator Mercer: Mr. Mongeau, I think you're absolutely right: There are too many lawyers involved.

[Translation]

Senator Maltais: Mr. Taylor, does CP own its railway tracks?

[English]

Mr. Taylor: Yes, we own our own tracks.

[Translation]

Senator Maltais: Is it true that they have been funded by the federal government?

[English]

Mr. Taylor: No, CP has always —

[Translation]

Senator Maltais: Never?

[English]

Mr. Taylor: No.

[Translation]

Senator Maltais: Mr. Mongeau, do you own your railway tracks?

Mr. Mongeau: Absolutely.

Senator Maltais: Has the federal government ever provided any funding for the construction of that railway?

Mr. Mongeau: CN was a crown corporation for a long time. The answer to your question is a bit more complex. Since 1995, CN has been a private company, but it has not received any funding in 20 years.

Senator Maltais: Going back to 1873, in the case of the Grand Trunk Railway Company, the Government of Canada funded the railway tracks you currently own. That is not what the problem is.

I listened carefully to your arguments. Today, I expected the two presidents of the only Canadian railway companies to propose some solutions. Your main argument is that it is cold and that there is too much wheat. That is God's fault, as he controls the two problems. But yours are the only two railway companies in Canada. You are currently facing the problem, and if you do not resolve it, fines will be issued under the legislation. Complaining is pointless. You should take the necessary steps to resolve the issue because, given the free trade agreements we have negotiated with other countries, the situation will become increasingly problematic. Moreover, it is our luck that global warming is taking place. Every year, the climate will change and weather will become colder. You should get used to that. I expected to hear a solution to the problem.

Mr. Mongeau: We have plenty of solutions. We have to find ways to work together in a commercial manner. This is what I have been saying since the beginning of the winter. That approach would entail better alignment, better coordination, and investments that help increase the capacity of the whole supply chain. That is our approach and our preference. Unfortunately, we are here to tell you about what has happened already. The government decided to implement regulations. We are here to defend ourselves. You have heard from other witnesses, and we are defending ourselves to help you understand that the legislation you are putting forward may not be the best way to deal with the situation. However, we are focused on proposing solutions, and we are aware of this reality.

Senator Maltais: Why have you waited so long? The minister decided to impose legislation in response to an existing problem.

[English]

The Chair: Mr. Taylor, do you have anything to add?

Mr. Taylor: Nothing to add, no.

Senator Tardif: Today we've heard a lot of people speak about the problem of car allocation. I think the biggest fear that we have heard today from the presenters is that they would not get the required car allocation. I'm trying to understand: What are the criteria you use for the rationing of cars? How do you assure yourselves that it's done fairly?

Mr. Taylor: We sit down with customers at the beginning of the crop year and look at historical averages, their capacity and whether they have deployed new capacity. We also look at their efficiency. Then we notionally allocate cars in that manner.

My competitor alluded to the revenue capping impediment. What we do in the U.S., and if we didn't have a maximum revenue entitlement regime in Canada, we could have a car auction, which would allow for better alignment between car allocation and customers' needs. If you had a vessel waiting for grain in Vancouver, maybe you would pay demurrage minus $10 to get access to that car.

In the grain space — and again my competitor has already talked about this — we need more commercial. That is part of the solution versus more of these regulatory interventions. That's basically how we allocate cars, and we have put forward a solution on how we could do it better.

Mr. Mongeau: It's on the basis of a fairly strict allocation using the history of market share of the grain elevator companies using our services. It's no different than what the grain commission used to do. It's not without unintended consequences, but we effectively say, ''You used us last year for 4.5 per cent or 8.9 per cent. There's far more orders than what we can do. We will do as much as we can and give you 4.5 per cent or 8.9 per cent.'' In that regard, everybody's getting fair treatment.

The producer cars, like the Battle River Railroad, have many more orders, but they have the equivalent share of producer cars. In fact, in the case of producer cars, we increased our allocation a little bit because the demand is so large. By and large, though, we do it on the basis of history.

Senator Tardif: And that was one of the complaints we heard.

Mr. Mongeau: How would you do it differently?

Senator Tardif: That it was unjust to do it on a historical basis.

Mr. Mongeau: You will have to help me who I give it to, because there are many mouths to feed, and they all want more and all have a good reason to want more.

We have 38,000 orders more than the best performance ever in the industry. I mean, how do you allocate fairly? You have to have a metric.

Senator Tardif: Well, I think this is a concern of the short liners. They're concerned that they're growing. They're thriving. They want to open up new markets, but they're handicapped. Again, it's how far you are willing to go to work with these companies.

Mr. Mongeau: You will have to help me, senator, with who I take it from. We have a level of service complaint at the moment. I'll give you an example.

One of the few customers got higher allocation because they brought on more capacity. They have grown year over year. They are one of the few handful that got a little bit more, yet they want even more. So if I give them more, or if you decided to give them more or the CTA decides to give them more, you also have to have the other question: Who do I give less to? Is it Churchill? Is it Battle River? Is it another customer?

In a world of rationing, you have to have a fair system.

Senator Tardif: And when do people decide to buy new cars? Is it not a possibility to just build more?

Mr. Taylor: Our fleet is getting old. We have 6,000 Government of Canada's that were bought back in the day when we had the government subsidizing movements of grain to the tune of $700 million a year. So a new car, a car that has higher cube capacity and that can be loaded at a higher level and also is shorter, so you can put more into a siding, is a win-win, but then we have this revenue cap regime.

Senator Tardif: Can you explain that a little bit?

Mr. Taylor: Our revenue is set by the government. So the maximum revenue we can earn from the movement of regulated grain in Canada, and that is grain to an export position, is set every year by the Canadian Transportation Agency. It's the only element of rail transportation that has actual revenue regulation, and it's an impediment. It's especially an impediment when you get into the characteristics of this crop year, when you have a demand that's way beyond supply-chain capacity and this push for more capacity in the longer term.

It was a regime that was developed when — I don't know, but I will guess a little bit on the figure — canola might have been about $200, not $450. I'll just throw out a few facts: In the last 14 years, commodity prices in Canada are up 160 per cent; rail rates are up 24 per cent.

So if you cap revenue and the commodity prices keep going like this, maybe it's time to have a dialogue about how you unlock that revenue restriction to deploy a new capacity.

Mr. Mongeau: In the U.S., the grain companies are part of the equation to make commitments on the number of cars so that there's balance. In Canada, we have a pay-as-you-go system with a revenue cap. I want more cars if they're going to be free. That's a no-brainer. So we should go to the government and say, ''You buy more cars; they want them for free,'' or we have to have a system that is different, like potash. In Canada, it's a very volatile system. They own the cars. They make their own bets, and we make bets on locomotives and crews. It's not as easy as saying, ''Go find the cars.'' We did that. It takes eight months. We have added more than 1,000 cars, which is more than 10 per cent of our fleet, since last fall.

[Translation]

Senator Dagenais: Mr. Mongeau, I have read your document and would tell you that, if I were the Minister of Agriculture, I would be none too pleased. I see on page 6 that you say the legislation draws on fantasies. I do not know whether you are referring to the bill. Further on, the document states that the regulations have all the ingredients to damage the economy, investments and jobs, and that they turn back the clock 50 years because of a record crop and the winter of a lifetime.

The minister appeared before our committee yesterday, and I mentioned that you or CP were saying that the bill was an intrusion into railway companies' commercial affairs.

I understand that the two parties are not on the same wavelength and that what matters to you, as president of a railway company, is the return on your shareholders' investment.

The question is very simple. Can a certain level of cooperation be expected in the wake of this bill? You will say yes, and we will see it. Producers are saying the crop yield may be high again, and that is what we are hoping for. We want to see high crop yields.

Mr. Mongeau: As much as possible.

Senator Dagenais: All the better if there is too much grain and if there are not enough cars for the transportation. I understand that you cannot stock cars if the grain yield is insufficient. The bill will be introduced and passed. Can we expect your respective companies to cooperate?

Mr. Mongeau: As long as we are invited to the discussion, senator, we are entirely open to collaboration.

Senator Dagenais: We will invite you, do not worry.

Mr. Mongeau: Yes. We want to take a commercial approach. I have already sent to Minister Ritz in more detail everything I wrote on this page, and I also mentioned it during the speeches delivered in Winnipeg. The minister has lost the balance and the perspective in this file. The measures he put forward are out of touch. This will not help move more grain. It will undermine the commercial relations between clients and railways. We are already seeing this, even though the legislation has not yet been adopted. The agency has already received three service complaints. As for commercial decisions on car allocations, the Transportation Safety Board in Ottawa will decide. If you believe using a government control mode to decide how to manage railway infrastructure is a good system, this legislation is a step in the right direction. However, if, like me, you feel that commercial forces — incentives, collaboration and coordination — constitute a better approach, this is a bad bill, since it encourages shippers to complain to Ottawa and adds competitive mechanisms I think are ill-advised. Interswitching is one of those mechanisms. The door is being opened to American railways stealing railway traffic from Canadian railways and shifting it to U.S. ports at interswitching rates that do not provide us with compensation. That is akin to opening up to competition without compensation, for the benefit of U.S. railways. CN and CP do not seem to be doing a good enough job. If we are operating at full capacity with the grain we have, we will not be able to help clients by interswitching to make up for the other company's problems. Traffic being allowed to shift towards the United States and create jobs in American ports does not serve Canadians' interests. I mean every word I have said, and I can back up every one of my statements. Unfortunately, we are lacking time, but railways have not had enough of a say in this file. We are heard from for eight minutes at the very end of the discussion, with the bill about to be passed.

The Chair: I would like to ask our witnesses to try to use parliamentary language.

Senator Robichaud: I was reassured by your confirmation that you know Canada has winters. A number of witnesses have told us that CN and CP do not seem to believe that we have winters. We have also been told that there are some major communication problems among the various players and that is was nearly impossible to talk to the railway companies. People call you, but no one calls them back. I am telling you what I have heard and giving you an opportunity to set the record straight.

What does this communication problem stem from? You may be engaging in conversation without understanding each other.

Mr. Mongeau: I have met twice with each of the grain companies' chief information officers over the past few months, at their offices, in western Canada or the United States. Our collaboration is very good. CN's mantra is to be a supply chain. When someone wants to give a dog a bad name and hang him, and convince the government that the law should be changed, they say that railways are showing favoritism toward oil, that they are inflexible and do not listen. Many things are said, but ultimately, we have to stick to the facts. As of now, we have never moved as much grain. We are prepared to make investments; we are focussed on coming up with solutions. We want to have a commercial system that encourages people to talk to one another instead of settling their disagreements in Ottawa. That is in the public interest, and we subscribe to such an approach. I cannot protect myself from the exaggerated actions of those who want to put the blame on us. So many lies are being told; it is very disappointing.

Senator Robichaud: But you still end up with the blame on you?

Mr. Mongeau: Yes, there is no doubt that the blame is on us.

[English]

Senator Oh: Thank you, gentlemen. After listening to all the witnesses, I would say the finger is pointing at you. You claim that you have moved more grain to the ports since September of last year than at any time, but we're having a lot of problems. The ships are waiting for the shipments. You claim that the grain elevators are not allocating more cars from you. There is a lot of communication breakdown. The farmer doesn't know that there's going to be a 100 per cent bumper crop coming. One plus one is two, and I think the whole supply chain probably needs a complete overhaul. Would you comment on that?

Mr. Mongeau: I would say we need a complete attitude overall. We need to bring people around the table. We need to share facts in better time than we have to date, and we need to find commercial solutions. I have been advocating for that since September and unfortunately we were holding our own through the fall, but when winter came and with the problems that we faced, we lost perspective and balance. We went to a mode of putting the monkey on the back of the railroads and coming forward with bills, which in my view make us take a step back.

It's the unfortunate reality. I wish I could have changed it, but we are still prepared today. And if there's one good piece in that legislation, it's that it has a sunset in two years. So hopefully we have two years for better minds to prevail and more collaboration to show its fruits.

The Chair: Thank you, Mr. Mongeau.

Senators, due to the time, plus waiting for the last panel, the chair will say that was the last question.

[Translation]

I will hear Senator Robichaud's comment.

Senator Robichaud: I want to bring up something you said, Mr. Mongeau. You claimed that, at some point, a system was being established to transport grain toward American ports. That is a source of concern for me.

Mr. Mongeau: If you look at page 8 of my document, for CN and CP, it would be very inefficient to go across and interswitch traffic between them and us. The two companies have more traffic than they can handle. So interswitching would not benefit the traffic between CN and CP. However, BN is located 160 kilometres south of Winnipeg, and if BN was to take over the traffic, it would be sent to American ports, and there would be no Canadian jobs related to the railway and no Canadian jobs in the ports. That may be okay if the interswitching rate compensated for the railways, but the current rates do not provide us with compensation, and what is even worse, in the context of the revenue cap legislation, we are not even paid for our interswitching activities.

The Chair: Thank you very much, Mr. Mongeau, President and CEO of the Canadian National, and Mr. Taylor, from CP.

[English]

Thank you for sharing your comments and making your statements. There is no doubt what you have brought forward will be in our Hansard, and many people will read them.

Honourable senators, the fourth panel of the day is here to continue our study on Bill C-30, the proposed fair rail for grain farmers act.

[Translation]

And, the Fair Rail for Grain Farmers Act.

[English]

At this time I will introduce Mr. Art Enns, Executive Member of the Grain Growers of Canada. Our second witness will be Mr. Rick White, Chief Executive Officer, Canadian Canola Growers Association.

To both, thank you very much for accepting our invitation and sharing your opinions and comments on Bill C-30. The chair will recognize, for the first presentation, Mr. Enns, to be followed by Mr. White and then by questions by the senators.

Art Enns, Executive Member, Grain Growers of Canada: Mr. Chair and committee members, thank you for inviting me to speak today on Bill C-30 as President of the Prairie Oat Growers Association and a member of the executive of Grain Growers of Canada. I'm also a farmer from Manitoba.

I would like to begin by expressing our appreciation and support for the steps taken by the government to get grain moving again. The government is listening to our concerns, and this legislation, in building on the order-in-council provision, is moving us toward a rail system that is more balanced and accountable. We thank them for that.

Through this legislation and its subsequent regulations, we hope to achieve accountability between railways and shippers to improve the supply chain through service level agreements with reciprocal penalties; meaningful delivery contracts between grain companies and farmers, bringing certainty to the grain sector; increased competition through interswitching to improve rail service performance — we support an increase to 160 kilometres — and better transparency through increased reporting, helping to maximize network efficiencies for all players in the supply chain.

I think we're all familiar with the issues that have brought us to this point. It's not just about farmers sitting with backlogs of grain in our bins. We are also losing out on good prices. In our crop, oats, we are seeing farmers being offered only half of trading prices at a time when millers need oats desperately, all because we cannot get grain to market.

While oats remain 20 per cent behind last year's exports, we are 70 per cent behind our available product. The past two months have seen some improvement in movement to the United States, and we're happy for that. However, we still hear that Australia and other suppliers are positioning themselves as more reliable exporters. We find ourselves losing markets that we spent years building. This is unacceptable.

Remedies to date have largely focused on the West Coast ports, to the detriment of other corridors, especially the southern corridor. It's very important that government use the expanded role of the grain monitor to track railway allocations against demand by corridor and destination on a weekly basis.

All crops and designations expect fair and equitable service. To achieve it means all players working together. As such, we have asked the government to consider the following: setting minimum volumes for movement by corridor and getting the input of commodity groups when setting corridor minimums since we are well placed to understand long-term demand and immediate production requirements.

It has been suggested that these matters could also be addressed in Bill C-30's regulations. We would welcome this. It presses the need to get this legislation passed and its regulatory package in place as soon as possible, in time for the start of the crop year on August 1, 2014.

Grain growers also want to emphasize the need for certainty past 2016, when the provisions of Bill C-30 may sunset.

Producers, shippers, handlers and railways need a planning horizon of at least one year. Therefore, we would like to express the need for the Canadian Transportation Agency to immediately begin the capacity planning exercise for the 2014-15 season.

Equally, the review of the Canada Transportation Act needs to be undertaken as soon as possible, and we are encouraged by the government's plan to expedite the rail portion of the review.

The legislation represents another important step in clearing the backlog and addressing Canada's rail freight system deficiencies, but more work needs to be done.

We in the agriculture sector are united in our belief that the steps taken by the government to date need to be part of the long-term solution to address the transportation problems commodities, including grain, are facing.

Long-term change is needed in this system as we face growing demands on railways across all corridors and commodities. The ability to move product affects every sector of Canada's economy, including mining, forestry, agriculture and petroleum. We need to work together to find equitable solutions for all parties dependent on rail transportation in Canada. We need a transportation system that can meet the needs of all commodities and all Canadians, right down to consumers when they buy their morning cereal.

We thank all parties for their efforts to expedite passage of the bill and stand ready to focus on next steps as soon as it gains Royal Assent.

Thank you. We will entertain questions later.

The Chair: Thank you, Mr. Enns.

Mr. White, would you make your presentation, please?

Rick White, Chief Executive Officer, Canadian Canola Growers Association: Good afternoon, Mr. Chair and members of this committee. Thank you for inviting me here today to speak with you about Bill C-30.

The Canadian Canola Growers Association is a national association that represents the voice of Canada's 43,000 canola growers. With over 90 per cent of Canadian canola ultimately destined for export markets, canola farmers rely on Canada's railways to help to get our products to customers and to keep those products competitive within the global oilseed market. Predictable, timely and efficient rail service is critical for our $19 billion canola industry. Furthermore, with rising demand for our products, supply chains and rail logistics will be even more important as our industry strives to reach our new 2025 goal of 26 million tonnes of canola production.

This crop year, canola farmers harvested a record 18 million tonnes of canola. With relatively high prices, farmers were feeling optimistic, but they haven't seen the benefits of this bumper crop due to a breakdown of grain movement by rail from country elevator to terminal. Farmers have lost marketing opportunities and now face cash flow challenges as their canola continues to sit in their grain bins. We are also seeing unprecedented carry-out stocks that will impact the markets for several years to come. Throughout this crisis, the government has shown commitment to resolving both short and long-term rate service problems. There is now money for better monitoring. The order-in-council got grain moving at mandated levels, and now we have Bill C-30.

We are encouraged that these efforts appear to be paying off as performance has improved incrementally over the last several weeks. CCGA supports the proposed changes to the Canada Transportation Act in Bill C-30. The amendment introduced by the government is a step towards making the logistics system more commercially responsible. The proposed extended interswitching limit is a positive action that has the potential to inject increased commercial competition across the west for all shippers. We do believe attention must be paid to the impacts on corridors to ensure that product is moving to where the market needs it to go, rather than the most expedient path to fulfill statutory or regulatory volume obligations. Hopefully, this can be addressed in regulation.

While CCGA fully supports Bill C-30 and is looking forward to it coming into force, we see it as an enabling framework, and the true measure of its success will depend to a large extent upon what is contained within the associated regulations. We are committed to working with the government through the regulatory process and beyond.

While we recognize that Bill C-30 is an important bridge to the statutory review of the CTA and long-term improvements in the movement of grain, in order to fundamentally rebalance the commercial relationship between shippers and railways, we intend to continue to press for more action in two key areas.

First, a proper definition of adequate and suitable service in the common carrier obligations contained in the Canada Transportation Act is required. Railway service obligations must meet the transportation needs of the shipper.

Defining service as that which meets the shipper's needs would inherently address the capacity issue in a way that is not specified by government edict and would clarify that the service provider is statutorily compelled to do what they need to in order to carry the traffic presented to them.

Second, there must be explicit provision for the element of reciprocal penalties in service level agreements.

Service level agreements that include the mandatory element of reciprocal penalties for non-performance when service obligations are breached will increase the accountability between parties in the supply chain and hold them financially responsible to each other.

Ideally, this will also allow for penalties to flow through to producers who currently contract their grain companies and receive no consideration when there is a service failure between the grain companies and railways.

We and the shipping community as a whole continue to support the six amendments presented to the government in 2010 by the Coalition of Rail Shippers. They remain central to effecting meaningful change in the service level agreement mechanism.

In closing, the experience this year has clearly demonstrated that the railways operate in a privileged position where their statutory common carrier obligations can be skirted, punishing Canadian agricultural producers, other shippers and ultimately the national economy. It is time to rebalance the commercial relationships within the supply chain and increase accountability through meaningful and effective contracts on service and performance. Bill C-30 presents us an opportunity to do just that. We are committed to working with the government to make sure we capture this opportunity for the benefit of our growers, supply chain participants and all commodities.

We appreciate the opportunity to address the committee, and we look forward to taking your questions.

The Chair: Thank you, Mr. White. We will go to questions.

Senator Mercer: Thank you both for being here. I appreciate that.

Mr. Enns, you said the government is listening to your concerns, but you go on to talk about some of the problems. Whose fault is this crisis? Everybody has been accused of finger-pointing here today, so let's continue. Point your finger. Who is to blame?

Mr. Enns: I think you can call it a perfect storm. A number of things aggravated the situation. We had a record crop and record demand for our products. Our elevator companies went out and sold record amounts of grain. Yes, we had a very bad winter, so transportation failed us.

One of the things I see happening in our rail system is that we don't seem to be building as our economy is increasing. More demand is happening and there are more requirements for our service. I look across the lines and see Burlington Northern Railroad. They're investing over $1 billion in infrastructure and new equipment just in North Dakota and South Dakota. I haven't seen those kinds of numbers coming out of our railways here. Those are just two small states no bigger than Manitoba and Saskatchewan together. That's where I look and say, I don't know; I don't want to finger point. I'm just saying that I'm looking for solutions. We need to work together.

Senator Robichaud: You say that Burlington Northern is in the States.

Mr. Enns: Yes.

Senator Robichaud: It operates mainly in the United States, I should say. They are buying new equipment. Are they receiving the same compensation for transporting grains as the Canadian railways receive in Canada?

Mr. Enns: I would suspect their structure is different, but I am not totally familiar. They have a railcar bidding system, and their infrastructure is different.

They were running behind in sales this year and are rising to the demand of what their customers need. I talked to one of their operational managers and he said that they were behind and would be one of the railways affected in the interchange because they could run into Canada with the 160-kilometre exchange. He said that right now they're not looking for new business. They're trying to supplement and make sure they service their customers. He said they're providing more equipment to make sure they can do it. Obviously, they're seeing a return on their investment out there.

Senator Mercer: Mr. White, this year we had a record crop of 18 million tonnes of canola, and you're talking about 26 million tonnes by 2025. That's a very aggressive target. I hope you make it — it's important. You said that farmers have lost marketing opportunities and now face severe cash flow challenges as their canola continues to sit in the grain bins. How many of your members have taken advantage of the government's $100,000 maximum interest-free loan?

Mr. White: Thank you for the question. We administer the cash advance program on behalf of the federal government. We just finished issuing on the last program, which ended on March 1 this year. We issued almost 13,000 advances under that program for a total of $1.6 billion. That is just as busy going into April with the new spring program. We are already at over $300 million to almost 4,000 producers in the first month of operation. There is a cash flow problem out there largely because of lack of delivery opportunity because the railways aren't moving enough grain.

Senator Mercer: When we had the single desk, did we always have the same cash flow problems? Wasn't it a little more even in that money was flowing to farmers earlier, even before the grain was shipped?

Mr. White: No. I think right now we just have to get the sales on the books. Whether the Wheat Board was in this or not, they would not be able to pay farmers when farmers couldn't deliver. It's not an issue in my mind whether the Wheat Board was here or not. In fact, under the Wheat Board system, the cash flow was even less because farmers got paid for only a portion of their grain.

Senator Mercer: You said in your presentation about Bill C-30 that you see it as an enabling framework. I'm not sure I understand. We have already heard from witnesses over the last couple of days that there is really no overall plan, no big picture plan as to how we're going to manage this from year to year. This is proposed legislation has a sunset clause, but nobody is sitting down and creating the big plan by meeting with organizations such as the Canadian Canola Growers Association, with farmers, with the railroads and with short-line railroads to discuss the complicated problems that a large crop like this has brought.

As I've said over the last couple of days, I hope this is not an unusual crop. I hope this is the baseline that it will grow from and that next year's problems may even be greater if we don't find a way to respond and organize ourselves in a fashion that will properly service suppliers and compensate railroads. As well, everybody keeps forgetting that the ports have to operate efficiently at the other end to get the grain out of the country and into the hands of our customers.

Mr. White: We see Bill C-30 as bridging legislation to enable the government to do things that they wouldn't normally get involved in due to responding to the crisis at hand. This enabling legislation allows us a path forward to deal with the short-term emergency problem that faces us and get us to the CTA 2015 review where we can start talking about the longer-term fix, one of which I mentioned is fixing the definition in the act regarding ''adequate and suitable.'' What is that? The definition needs to focus on the needs of the shippers, not on the needs of the railways. If we can get clarity on that, then the railways will be statutorily obliged to size their capacity according to the market demand facing them. This problem wouldn't be nearly as bad today if we had had that definition fixed before now.

Senator Mercer: Indeed, I was going through my notes from my speech on bill C-30 in the chamber yesterday. I thought maybe you were quoting me when you talked about proper definition of ''adequate and suitable'' service carrier obligations contained in the Canada Transportation Act. You're right on. This is an important thing. It was an opportunity missed before in Bill C-52; and it's an opportunity being missed this time. We've got to get down to doing this.

The Chair: Is there a question?

Senator Mercer: There will be a couple of questions.

You went on to talk about the SLAs, but you didn't talk about the difficulty some people have expressed to us about the cost of negotiating those agreements with the railways. You're a big organization dealing from a position of strength. The smaller supplier negotiating a service agreement with the railroads will have a heck of a lot more difficulty dealing with the exorbitant costs.

Mr. White: I guess I should clarify. The SLAs are the actual contractual arrangements between the railway and the shipper of record. As an association, we are not a shipper of record. However, we are interested in how that SLA provision works, because without that being a real commercial agreement that has repercussions for both parties to perform, then those SLAs are not worth the paper they are written on, in our view.

So you have to get a normal standard contractual arrangement in place. A normal standard contractual arrangement includes reciprocal penalties for both parties should one or the other not perform in fulfilling their duties. We do not come at this from a negotiating perspective; we're looking at this more from a policy perspective.

Senator Mercer: For future reference, it would be very helpful if your association monitored the SLAs that your members have negotiated with railroads: the cost, the time it has taken, and how it has been managed. That has little to do with Bill C-30 today but rather in the future — especially when we get to reviewing the Canada Transportation Act, which you talked about being in 2015. I understand there is a push to start the rail side of this a little earlier with the Canada Transportation Act.

[Translation]

Senator Dagenais: I want to thank our two guests. In your document, you said that predictable, timely and efficient rail service is critical for your industry. You are highly dependent on that service. You mention further on that you have harvested 18 million tonnes of canola, and if the trend continues, you may reach 26 million tonnes by 2025. We can assume that the production will continue to increase. That said, owing to railway services, some farmers have lost marketing opportunities and even faced cash flow difficulties. Further on you say that, ''railway service obligations must meet the transportation needs of the shipper.'' So here is my question for the two witnesses: are you currently satisfied with railway transportation?

[English]

Mr. White: Currently, no, we are not satisfied with the rail transportation service. They are meeting the minimum order-in-council level of approximately 5,500 cars weekly per railway. That's about a million tonnes a week. But the railways need to do better than that.

In the future of new, larger crops, they need new and larger capacity to plan to move these crops, because the trend line on production in Western Canada is increasing at least 3 per cent a year, year after year, year in and year out. They need to start responding to that new reality and not be focusing on the last five-year average. We want them to focus on the trend going forward and the demand on their system coming up in the new year so that this kind of situation doesn't happen again.

Mr. Enns: I agree with Rick. Our own industry depends on the milling industry in the U.S. They basically import almost 90 per cent of their requirements from Western Canada. This winter, they were relying on roughly about a hundred cars a week that they needed to fill their mills, and for a time period this winter, the railways weren't running in there at all. So when you have a hundred cars going in and then, all of a sudden, nothing going in because they did not have them, that really causes a hardship. We heard the railway say it takes longer to move cars into the U.S. than it does to the ports.

We need to have a functional system; it just can't go on like this.

I will tell you of an incident of a line manager who told me about the frustration. He had oats in his terminal 600 miles from the mills in Minneapolis. He had a contract that he needed to fill over there. He had to go to northern Europe to buy oats, ship them to Houston, and bring them back up to the mills that were 600 miles from his terminal. He says, ''If that isn't a dysfunctional system, please tell me what is.''

[Translation]

Senator Robichaud: Both witnesses can answer my question. Were you consulted before Bill C-30 was drafted?

[English]

Mr. White: We were certainly involved in communicating with the government officials about what we thought needed to be in new legislation. We weren't consulted on what they were actually writing during the writing process — that would be unusual — but we did have our input upfront.

We did have our response to what was initially drafted. Our response to what was initially drafted resulted in a new amendment, which we thought was important to include, and we fully supported that amendment that was added to the original Bill C-30 as it first came out. So, yes, I guess we were consulted during the proper process.

Mr. Enns: We were also very involved in the lobbying to get this bill moving. Almost from the start, we were asking for some specific changes, because we definitely felt the southern corridor was not getting the attention it should. The southern corridor does not only encompass oats; it takes malt barley and pulses all the way down to Mexico, so it's an important route. So when the legislation changed to include possible minimum tonnage on corridor restrictions, that was a real huge benefit to groups like oats and smaller crops.

So we've been working very closely with it. Like Rick said, we weren't privileged to all details of the bill, but we were definitely in contact with the minister's office, asking for certain requisites in the bill.

Senator Robichaud: I understood the first line you said you were actively lobbying for this legislation. I have no problem with that.

Mr. White you said:

In closing, the experience this year has clearly demonstrated that the railways operate in a privileged position, where statutory common carrier obligations can be skirted, punishing Canadian agricultural producers, other shippers and ultimately the national economy.

Would you elaborate a bit on that, please?

Mr. White: Sure. In our view, the statutory obligations of the railways have not been met; they have not provided this year suitable and adequate accommodation to move all the traffic offered to it. That is what the current CTA requires, and the railways were not anywhere near fulfilling that obligation, in our view.

So we're saying they must be in a privileged position to be able to skirt their statutory obligations. As a result of not moving nearly as much as they should have been, that in effect punishes agricultural producers, because right now we are looking at a 22- or 23-million tonne carry-out at least at the end of this crop year. That is certainly not acceptable, and that is certainly not, in our view, fulfilling their statutory obligation to provide suitable and adequate accommodation for the movement of all the traffic that we offered to them.

Senator Robichaud: There you go, saying ''suitable and adequate,'' which you yourself define, but CN has said that they have transported much more grain this year than they did in previous years. So who defines ''adequate'' here?

Mr. White: That's why we would like to see clarity in the act. Defining ''suitable and adequate'' to mean meeting the needs and demands of the marketplace, i.e., the shipper and what has been offered to the railways to move.

Senator Robichaud: Did you suggest an amendment to that effect to this bill?

Mr. White: No. We support the bill in its current form, but we will be continuing to work with the government to address the ''suitable and adequate accommodation'' definition in the act under the 2015 review of the CTA. So we have a plan to work to get that in, but now is not the time to put it in.

Senator Robichaud: Mr. Enns, do you agree with that?

Mr. Enns: Yes, I do.

Senator Mercer: I just want to go to what Mr. White said.

You weren't anxious for amendments now, but you did say in your presentation:

We, and the shipping community as a whole, continue to support the six amendments presented to the Government in 2010 by the Coalition of Rail Shippers. They remain essential to effecting meaningful change in the Service Level Agreement mechanism.

Why would we do it now if you said you don't want to do it now? You said you support it, but you don't want to do it.

Mr. White: It is certainly required. It's not that we don't want to do it. It's that we do not want to delay this bill. There are too many good pieces in it, and we need it now, as quickly as we can get Royal Assent on it. We need it now. I can't express how important it is to take what we've got and use it, and we will continue to push for these larger pieces in the 2015 review of the CTA.

Senator Mercer: Even with all its flaws.

Mr. White: I would say shortcomings, yes.

Senator Oh: Thank you, gentlemen. First of all, I would like to thank you for supporting this important piece of legislation, Bill C-30. It is important to help you quickly move out all the grain, to start your cash flows again, and most importantly, to protect your market share. As you mentioned, Australia is stepping up, so your market share on delivery of your product is very critical.

Would you agree that this is the time that we take this opportunity to do a complete overhaul on our supply chain, to look into it to prevent other things happening like what happened this year?

Mr. Enns: I think you're right. There are a lot of changes that need to be made all the way down.

One of the key things I see is that we need to be viewed as a reliable supplier of whatever grains we are. You go to international conferences, and you always keep hearing that Canada cannot be relied on to be a regular customer. Then our competition, like Australia and some of the other countries, say, ''Come to us; we are reliable.''

That is the key. We need to be reliable. You know yourself that if somebody gives you reliable service, you're not going to move away from him for any reason. There's usually a reason you move. That's why it's so critical that we maintain what we have.

Are there other fixes we need? Absolutely, but right now we need to get back and be viewed as a reliable source, because we do have some of the best export products in the world. We have good products we grow right across Canada, but we do have issues with reliability.

Mr. White: Some of these things, like regulations, we can get at fairly quickly, as soon as the bill has passed.

Senator Oh: Thank you. We will do our best.

Senator Tardif: The representatives from the two major railways that we heard this afternoon said that part of the problem was that the grain companies were sleeping at the switch, so there were cars that were being unused. They had cars available in September, August. They were not being used. What happened?

Mr. Enns: I think you have to be careful how you interpret ''cars available.'' Our crop in Western Canada was late this year. We seeded late in springtime, so the crop wasn't really coming in until September, October, and it takes a while for farmers to start delivering. So the delivery period was delayed this year.

Even though the cars were available and the rail had capacity, the grain hadn't come off the fields yet to be put into market position to sell. That was one of the areas.

Senator Tardif: Any comment from yourself? Would you agree?

Mr. White: Yes, I absolutely agree. There was a bit of a delay. However, saying that cars were available in August and September, obviously there was not nearly enough capacity put on by the railways to accommodate the crop that ultimately started coming off the field and into the system. Yes, maybe cars were available, but the railways failed to plan for a large crop. They failed to plan for winter, and the whole system broke down.

Senator Tardif: Can I ask you, are grain companies considered to be shippers according to the act?

Mr. White: Yes.

Senator Tardif: So you would be a shipper as well. Do you feel that there is transparency in the bill in the sense that the price offered to producers, would they know? There's quite a difference, is there not? What is the spread between the price paid to the farmer and the export price?

Mr. White: That spread in the industry is called the ''basis,'' and that basis is a competitive spread. That's the price signal that the elevator companies use to entice producers to deliver their product to them or to ''disincent'' them to deliver because the system is plugged.

Right now, basis-level spreads are tremendously wide, meaning it would be very expensive for a farmer to deliver if they had the opportunity. That is the market signal saying, ''We don't want your grain in the system because the system is still plugged, so please don't deliver. If you do, we're going to charge you big time for it.''

Senator Tardif: I've been told that producers are getting about 48 per cent, and last year it was about 87 per cent; is that correct?

Mr. White: I don't have the details on that. It could be correct, but I can't verify the accuracy of that.

Senator Tardif: It's also been said that grain companies are getting a lot of the money, it's not going into the hands of the producer, and that this act will provide compensation for the shippers, the grain companies, but not necessarily to the producer. Do you think that is fair and equitable?

Mr. White: There's also a provision in the bill to allow the Canadian Grain Commission to award and work with farmers to get compensation out of grain companies for contracts that the grain companies sign with the farmers but did not uphold their end on. There is some thought put into that and some legislation that is being contemplated to provide that as an avenue.

Senator Tardif: When you say ''contemplated,'' that means further down the line?

Mr. White: No. I think it comes into effect with the rest of it, but it will take some time for the industry and the grain commission to figure out exactly how that mechanism will work.

Senator Tardif: Mr. Enns, any comment?

Mr. Enns: I think, in fairness, the grain companies have incurred some huge costs having those ships waiting in the harbour in Vancouver and paying the demurrage. That has fallen on the grain companies over here. So to say they've been pocketing the windfall over here, they've had some unexpected expenses, too.

I talked to a top executive who has been scrambling the same way. He said, ''You guys have been yelling at us for not taking your grain,'' from the farmers' perspective, but said, ''We've also had the same people yelling at us for not fulfilling our contracts with the wheat made for the export market.''

I think everybody has been hit hard this year. To say someone has had windfall profits on this thing, I don't have the proof, but I would really question it. In a situation like this, there usually aren't too many winners.

Senator Tardif: Thank you.

The Chair: Thank you to the witnesses for sharing your opinions and thoughts and comments with us.

Before we conclude today, I remind all members that the committee will continue to hear witnesses with regard to Bill C-30, the proposed fair rail for grain farmers act, on Thursday, May 15, from 8 a.m. to 10 a.m. and then in the afternoon from 2 p.m. to 3 p.m.

(The committee adjourned.)