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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 12 - Evidence - Afternoon Meeting of May 15, 2014


The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures, met this day at 2 p.m. to give consideration to the bill.

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Percy Mockler, and I am a senator from New Brunswick and chair of the committee. I will ask the senators to introduce themselves before we move on to the witnesses, starting with the deputy chair.

Senator Mercer: I'm Senator Terry Mercer from Nova Scotia.

[Translation]

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

[English]

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

[Translation]

Senator Maltais: Good afternoon. Ghislain Maltais from Quebec.

[English]

Senator Plett: Good afternoon. My name is Don Plett, and I'm from the province from Manitoba.

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you, senators.

This afternoon, I want to thank the witnesses for accepting our invitation to share with the committee their views on our study of Bill C-30, the proposed fair rail for grain farmers act.

Honourable senators, in this panel, we have three presenters here at the table plus one via video conference. After you make your presentations, witnesses, questions will follow from the senators.

With that, honourable senators, we have the following witnesses: Mr. Kevin Bender, Commission Director of the Alberta Wheat Commission; Mr. Phil de Kemp, President of the Malting Industry Association of Canada, who is appearing on behalf of the Barley Council of Canada; and Mr. Greg Cherewyk, Chief Operating Officer, from Pulse Canada. Connected by video conference is Mr. Humphrey Banack, Vice-President of the Canadian Federation of Agriculture.

I have been informed by our clerk, Mr. Kevin Pittman, that the first presenter will be Mr. de Kemp, followed by Mr. Cherewyk, Mr. Bender and then Mr. Banack.

Mr. de Kemp, the floor is yours.

Phil de Kemp, President of the Malting Industry Association of Canada, Barley Council of Canada: Good afternoon, Mr. Chair and distinguished senators. Thank you for inviting me here today to speak on this important issue. It is one that, quite frankly, I am extremely passionate about. This issue is critical for Canadian agriculture and the future economic prosperity of our country.

I am the trade and policy adviser for the Barley Council of Canada, and I am President of the Malting Industry Association of Canada. I bring greetings from our chair, Brian Otto, who couldn't be here because winter, hopefully, is almost over just south of Lethbridge and he is in the fields today doing his real job of being a farmer.

For those of you not familiar with Canada's national barley council, we represent farmers from across Canada as well as the entire supply chain for barley, including members of the research and life science community, all of the malting and the brewing sectors, the feed and the livestock sector, and select grain handling companies. We are the only national organization that has every stakeholder at the table. We represent every aspect of the value chain. This is why we are so pleased to have the chance to share our unique perspective here today.

To be clear, the BCC believes that Bill C-30 is an important step in the right direction, and we appreciate the government's efforts to get this bill passed and the work that has been done to relieve the grain backlog across the Prairie provinces. However, we also realize that while this bill is an important step, it is also just a first step. We must continue to work toward a viable, transparent and competitive rail system for everyone.

The Barley Council of Canada recognizes that this issue extends to all commodities. To be quite frank, this isn't just about grain. We recognize that all of our partners in other commodities are suffering the same effects of this transportation crisis, and we will continue to push for long-term solutions to address it. In particular, we recognize the challenges faced by our colleagues in the forestry, potash, mining, coal and other sectors. We want the grain industry to have fair and equal access under a transparent system, and we want our industry to grow alongside our rail shipping partners and the commodities that they also represent. Our goal is to work with all of these groups to ensure that all of our industry shipping requirements are met in the future. We are not here today to pit farmers against anyone. We are all in this together, quite frankly, and we simply want to drive the economy forward.

As we strive to find a solution for everyone, we also recognize that there are some specifics within this bill that do require clarification. For us to have a strong, viable and transparent rail system, we need language that sets it in place. Certainly the terms ''adequate and suitable'' and ''service obligations'' within the existing bill are, in our view, too ambiguous and leave room for subjective interpretation. We need language that clearly defines the rights and obligations of all parties. We ask that this be addressed under this legislation. If it can't because of the time constraints, we certainly ask that this be given consideration under the current CTA review.

The BCC is pleased with the government's action to date and emphasis on accountability. We support the government's recent amendment to Bill C-30, which orders rail companies to compensate any person adversely affected for any expense incurred for failure to fulfill their service obligations. While it is our hope that these measures will suffice to serve as a deterrent, if not, we would also support the addition of punitive damages. Accountability is the core of the Barley Council of Canada and something we would greatly appreciate being reflected somewhere in the bill.

The final point I would like to emphasize to all of you is the critical importance of moving our goods where they need to go. This isn't as simple as just getting our grain to the West Coast or to Thunder Bay. At this point, our country is suffering from an inability to ship grain on any of our rail corridors in a reliable fashion. We are encouraging the government to acknowledge that while important east/west access means more grain is moving along the major routes, in our view, it is doing so at the expense of shippers also going north/south. You must remember that the importance of our largest trading partner to the south is paramount, as transportation corridors are being seriously affected as a result of the March 7 order-in-council. It is important to encourage all shipping to all ports — not just Vancouver, Prince Rupert and Thunder Bay.

Our transportation difficulties become more manageable when we involve our shipping partners to the south. In our case, some of our shippers — malt and barley shippers in particular — have not been able to acquire the necessary cars to ship south or west, and quite frankly, in some cases, have been forced to originate supplies offshore. This is a problem that extends beyond our shores. Unfortunately, word is getting around the world and our reputation as a reliable international shipper is certainly beginning to suffer.

I was recently on a trade mission with Minister Ritz to South Korea and Japan. Part of the purpose of the trip was to provide assurances that Canada is doing everything possible to meet the needs of our international buyers. Our international customers of Canadian feed, food and malt barley are getting concerned that we can't get our commodities shipped in a timely and reliable manner. Rest assured they will go elsewhere; we have already seen it begin to happen. Canada is pro-trade, but we have to prove that we are reliable trading partners and the stakes could not be higher.

The barley industry is ready for growth and prosperity. We formed a national organization across the supply chain and we brought all of the partners together. We have buy-in from the entire value chain, and we have the supply and the quality, but unfortunately our rail transportation challenges are significantly restricting our ability to conduct good business. This is why we want a solution for transportation in Canada that is focused on a collaborative effort.

We believe it is in Canada's national economic security interest to have a competitive, reliable and transparent rail system that meets the needs of all commodity sectors.

I want to repeat that again, because that is something we would certainly like to see in a preamble perhaps under the CTA: We believe it is in Canada's national economic security interest. Canada's national economic security depends on our ability to respond to the growing demand for our quality products. Our international reputation was built over time and required significant investment from a cross-sector of stakeholders from coast to coast to coast. This is not about finding a solution for tomorrow or even for next year. This is about a long-term solution that delivers national economic security for all of Canada.

Thank you. I welcome any questions you may have.

The Chair: Thank you, sir.

Greg Cherewyk, Chief Operating Officer, Pulse Canada: I want to thank the committee for the opportunity to be here today to talk about Bill C-30.

I represent Pulse Canada, which represents, in turn, 30,000 farmers from across Canada, from Alberta through to Ontario, growers of pulses and special crops, as well as the trade and the service providers to the trade that process and export pulses and special crops.

When I last appeared before the Senate I was discussing Bill C-52 with the Standing Senate Committee on Transport and Communications. At that time I referred to comments that Peter Hall, Chief Economist at the EDC, made when he spoke to members of the Saskatchewan Trade and Export Partnership on May 29, prior to the harvest and prior to the fall shipping season. He said that: Key economic indicators are pointing to strong economic growth, increasing consumer confidence and generally good times ahead for the global economy.

But then he wondered, out loud, to that audience in Saskatchewan: Do we have enough warm bodies inside the province to do the work that's actually coming our way? And even if we can do all of those things, do we have enough transportation infrastructure to take the stuff that we have generated inside the province and get it to market?

We are here today because the answer to that question is no. We didn't have the rail capacity to move the stuff that was generated in Saskatchewan or any other production region in Canada and get it to market. We're here because that simply isn't good enough for Canadian farmers, processors, exporters or their customers in North America or around the world.

Mark Hemmes of the Quorum Corporation gave you an overview of rail freight capacity shortfalls, and the headlines in the ag media and national news combined with the presentations of my colleagues over the past few days and coming days will have covered the impact that the grain backlog has had on farmers this season so there is no need to go over ground that has already been covered.

I will say that Bill C-30 sends a strong signal that rail capacity that does not meet the market demand of the ag industry and rail capacity that cannot recover from adverse weather conditions is simply unacceptable. It is not consistent with Canada's economic growth strategy nor is it consistent with our National Transportation Policy, which states in section 5 that ''a competitive, economic and efficient national transportation system . . . is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada.''

With that as a backdrop, there is one item that I want to focus on in the limited time that I have right now and flag it as an issue of great importance to our members in connection with Bill C-30.

As I mentioned, the March 7 order-in-council and the extension of that order under Bill C-30 make a strong statement with respect to rail capacity expectations. Greater capacity must be added immediately and ultimately must be set at a level that responds to industry needs.

While the weekly minimum volume targets of 500,000 metric tonnes per railway per week represent a target that railways maintained they could hit during the fall peak shipping season, and in fact have celebrated hitting over the past two years for weeks on end, shippers within the agriculture community and across all sectors are now getting the message from their railway partners that their service will suffer as a result of the OIC.

Shippers are being told that orders destined for the eastern corridor, the U.S. and Mexico will not be filled as those are not preferred corridors.

In advance of this meeting, pulse and special crops exporters reported to me that they have been shut out on orders destined for Mexico and the U.S., with one reporting that: There is total discrimination against U.S. and Mexico; that part of the special crops business is being damage so badly it may never recover.

The data we have collected on performance for our participants in our initiative for the eight weeks after the OIC supports that claim, showing that CP planned to supply 70 per cent of orders destined for the U.S. and Mexico while CN only planned to supply 25 per cent of orders destined for U.S. and Mexico. Both railways plan to supply over 100 per cent of orders destined for the Vancouver corridor.

While there is no question that the intent of the OIC was to get grain moving, we are also quite certain that the intent was to ensure that shippers of all sizes, moving all commodities through to all destinations would receive fair and equitable service. The OIC does not in any way diminish the railway's common carrier obligation.

In that regard, we must ensure that OIC is helping industry achieve its plan to fill customer orders. And so I will ask the same question I asked the Standing Senate Committee on Transport and Communications on June 12, 2013: How will we know if we are achieving our goals?

We wouldn't expect you to accept aggregated information provided by railways any more than we would expect you to rely on anecdotal information provided by a few shippers.

Our expectation is that current and future minimum volume targets established by government will be accompanied by a measures program that tells us more than whether or not minimum weekly or monthly targets are hit. Measures must report on the allocation and distribution of assets against current demand, according to shipper size and order destination/corridor with a time series that is linked to established targets.

This system has to be put in place immediately so that we ensure all Canadian businesses and their customers are receiving fair and equitable service and that an OIC is not used as the basis for discrimination.

Thank you and I look forward to any questions that you might have on this or the many other elements of Bill C-30 in which we support and intend to participate.

The Chair: Thank you.

Kevin Bender, Commission Director, Alberta Wheat Commission: Thank you to the committee for inviting us to present here on behalf of the Alberta Wheat Commission and the farmers we represent in the province. I am a director with the commission, and I farm in the west central part of Alberta, near Bentley.

The Alberta Wheat Commission is pleased with the recent actions taken by the federal government to address the transportation challenges facing Western Canadian grain farmers.

On March 7 the government announced an order-in-council that would require rail companies to increase grain shipments and face penalties if minimum requirements were not met. This order would mark the first in a series of important steps to ensuring that Canada remains a reliable supplier of agricultural products.

The introduction of Bill C-30, the proposed fair rail for grain farmers act, is an important step toward the development of the long-term solutions required to build a sustainable and reliable rail transportation system in Canada. We are grateful for the action that the government has taken and would like to thank the Senate for this opportunity to comment on this important piece of legislation.

On March 28 the Alberta Wheat Commission joined our shipping partners when we appeared before the House of Commons Standing Committee on Agriculture and requested that a number of recommendations be considered as part of Bill C-30. It remains our hope that the recommendations brought forward at that time will be considered either as part of this legislation, the subsequent regulation, or as part of the forthcoming Canada Transportation Act review.

As Mr. de Kemp already mentioned, the Alberta Wheat Commission continues to seek a more specific definition of the terms ''adequate and suitable accommodation'' as well as the reference to ''service obligations.'' The current definitions are too ambiguous, leaving room for subjective interpretation. These terms should clearly define the rights and obligations of all parties.

We also advocated for greater rail competition through the adjustment of interswitching limits, and we are pleased with the government decision to increase these limits to 160 kilometres.

We also commend the government's recent amendment to Bill C-30, which orders rail companies to compensate any person adversely affected for expenses they incur as a result of the rail company's failure to fulfill its service obligations. By allowing any individual, be they shipper or farmer, to file a level of service complaint with the CTA, this amendment acknowledges that damages often extend beyond the shipper, as evidenced in the estimated $2 billion in losses to Western Canadian grain farmers this year alone.

The amendment at committee does not, however, mandate that penalty provisions be included as part of service level agreements, nor does it change any of the provisions listed under section 169.31 of the CTA. We believe that penalty provisions need to be included in the legislation in order for the forthcoming regulations to offer clear direction to arbitrators.

The Alberta Wheat Commission, along with the entire grain industry, will be closely following the development of the regulatory package that will implement Bill C-30 to ensure that the intent of reciprocal penalty for performance failures is realized.

Bill C-30 will build on the temporary provisions put in place as part of the order-in-council announced on March 7. One of these is if the railways fail to perform, the Government of Canada may impose minimum volume requirements and fines of $100,000 per day for failure to meet these obligations. This is just a prerequisite to move Prairie grain and does not specify where that grain needs to go. As Mr. Cherewyk highlighted, all corridors are important, and a lost customer in the U.S. is just as costly as a lost customer in Asia.

In addition to the overall shipping requirements specified in Bill C-30, we would like to see the inclusion of corridor-specific requirements. Corridor-specific requirements would ensure that all markets are effectively serviced, removing the temptation to restrict movement to the most efficient of these costly corridors.

Going forward, we would support the involvement of commodity groups when seeking corridor minimums, since we are well positioned to understand long-term demand and immediate production realities. It has been suggested that this could be addressed in a regulatory pack, and we would support that.

Further to this point, we ask that the government consider increasing the daily penalties if movement does not improve and directing that revenue to programs that support shipping infrastructure, such as the Building Canada Fund.

The Alberta Wheat Commission sees Bill C-30 as an important step and we thank all parties for their willingness to expedite this legislation. It is vital that the regulatory package that follows also receives rapid attention, and the Alberta Wheat Commission is eager to be a constructive part of that discussion. In addition, it is very important that the government initiate the review of the Canada Transportation Act as soon as possible. This review is the next step required to build a rail transportation system that will effectively service Canadian shippers, customers and the economy.

Canada's reputation as a consistent and reliable supplier of quality products requires an efficient and effective rail system that is committed to on-time deliveries to our valued customers across this country and around the world. We are encouraged by government efforts to grow the international marketplace for Canadian agriculture, specifically the recent EU and South Korea free trade deals. Western Canadian producers are poised to meet the growing demands for their products, but we need an efficient and effective rail transportation system to ensure we can fulfill that demand and continue to grow the Canadian economy.

Our international reputation was built over time and has required significant investment from a variety of stakeholders. We need to work together to protect that investment and respond to the growing demand for our Canadian products.

Again, we thank all parties for their efforts to expedite passage of this bill, and we stand ready to focus on next steps as soon as it gains Royal Assent. Thank you for the invitation to participate today.

The Chair: Thank you, Mr. Bender.

The fourth presenter will be Mr. Banack from the Canadian Federation of Agriculture.

Humphrey Banack, First Vice-President, Canadian Federation of Agriculture: Thank you, Mr. Chair and committee members. I am currently First Vice-President of the Canadian Federation of Agriculture. We operate a 5,500-acre third-generation farm in the Round Hill area of Alberta and crop of about 3,800 acres. I am pleased to be in front of the committee to speak about Bill C-30.

I am disappointed I was unable to attend; my invitation came late yesterday afternoon and finding a flight to Ottawa at such a late time was very difficult. I got a call at 3:30 to put this together, so I am pleased to be able to join you by video conference.

We are in the process of planting our crops right now, and I have taken time away from the tractor to come to speak to you. We feel it is important for you to have this thing brought forward. As Phil de Kemp said, transportation of our product to our customers is a very important part of our business. On our farm, we started planting this year's production in October of last year. We have contracted some of our anticipated production already, and we need to ensure our grain transportation system will not be the weak link in this chain to get it to our customers.

The Canadian Federation of Agriculture created a crop transportation and logistics committee comprised of crop producers and shippers in Western Canada and developed recommendations addressing not only short-term transportation issues facing Western Canadian grain farmers but also lasting solutions that will strengthen the entire logistics chain. My presentation today reflects the views of this committee.

The Canadian Federation of Agriculture understands that Bill C-30 is intended to alleviate the grain backlog in Western Canada and provide strengthened provisions to railway services to ensure that the current situation facing Western Canadian producers isn't repeated in the future. We also understand that a more robust and fulsome review of the grain transportation and logistics system will take place when the government begins its expedited review of the Canada Transportation Act this summer. Therefore, my comments and recommendations on Bill C-30 will focus on addressing the immediate issues that remain outstanding.

I will now discuss the penalties for non-performance, including service level agreements. The amended Bill C-30 included the possibility for the Canadian Transportation Agency to order railways to compensate any person adversely affected by their failure to meet their service obligations. The CFA fully supports this provision, as it places accountability on railways' performance, which presently does not exist.

However, this provision provides for payment of penalties for expenses that have already been incurred. What is needed is a mechanism to prevent the expense from occurring in the first place. In this regard, the CFA believes that the regulations referred to in the bill include the possibility of establishing reciprocal penalties in service level agreements that are set at a level that would ensure the railways meet the service standards outlined in service level agreements. Including clear penalty provisions to support service standards would be a great proactive measure to help mitigate or eliminate the possibility of damages occurring as a result of poor railway service, as opposed to the reactive measure that the bill currently contains.

Producer car needs is the second area I would like to address. As you heard from Ken Eshpeter yesterday, CEO and Chairman of Battle River Railway, producer cars are quite essential to the grain transportation system and Western Canadians, and they provide farmers with good options to deliver their grain. The producer car option not only gives farmers access to real transport but also provides a competitive cap on the basis level that elevators charge on our grains.

The record number of producer car orders in 2013 demonstrates the importance of this avenue for Prairie producers. However, the grain backlog has caused disruption in the system for producer cars, as well. We fear that if Bill C-30 does not carry teeth to keep producer cars available and make the railways accountable for the spotting of producer cars, they will be forgotten.

To address this situation, Bill C-30 should be amended to ensure that railways set aside a minimum percentage of hopper cars for producer car shippers. Bill C-30 also outlines that the Canadian Transportation Agency, after consultation with railways and grain handlers, will recommend minimum amounts of grain that railways must move in 2014-15 and 2015-16 crop years. To ensure the needs of producer car shippers are met, the bill should be amended to ensure that producer car shippers are consulted prior to recommendations to the minister.

Domestic markets need priority service. The final point I would like to raise is with regards to designating Canadian users of domestic grain as priority markets that must be serviced by railways, specifically the transportation issues facing the B.C. livestock producers. All of the discussion to date has focused on moving the grain backlog to export positions. What about the value-added livestock and milling centres that need that grain to feed their animals and process grain through their mills? We have a $2 billion livestock sector in B.C.'s Lower Mainland that is dependent on our Prairie grain. Their volume demand is a constant 100 cars per week, 52 weeks a year. Their livestock sector is currently dependent upon producer cars and shipments from small independent terminals, both of which have experienced challenges getting adequate rail service.

The big four grain companies are not currently taking any orders for domestic delivery, and with the order-in-council and now with Bill C-30, virtually all the effort is focused on getting the grain to export positions.

To make up this shortfall, it has been suggested that B.C. just truck the grain in. First, it's questionable whether there is enough trucking capacity to make this happen. Second, trucking costs are anywhere from $40 to $70 per tonne higher than shipping by rail. If B.C. feeders needed to resort to trucking in their feed, the rate requirements could cost their livestock sector an additional $18 million to $34 million on an annual basis. Clearly, this not tenable.

It must be recognized that Canadian domestic livestock and milling sectors are facing a crisis as well because they depend on reliable transportation of Prairie grain. Therefore, it is our recommendation that Bill C-30 contain provisions that ensure that priority is given to Canadian feed grains and other value-added Canadian markets to ensure their continued viability.

In summary, the Canadian Federation of Agriculture recommends that the regulations that describe the operational terms of service level agreements include the possibility of establishing reciprocal penalties that are set at a level that would ensure that railways meet the service standards described in these agreements.

Bill C-30 should also be amended to ensure that railways set aside a minimum percentage of cars for producer car shippers and that these shippers be consulted by the Canadian Transportation Agency, when it meets with the minister, on the minimum amount of grain that should be moved in a crop year.

Finally, Bill C-30 must contain provisions that ensure that Canadian feed grain and other value-added Canadian markets are supplied to ensure their continued viability.

Thank you very much. I look forward to further discussion.

The Chair: Thank you, Mr. Banack.

Questions will commence with Senator Mercer.

Senator Mercer: I thank all four of you. Your presentations have been very informative. There are consistent threads throughout your presentations here, general support for Bill C-30, but all of it with a big ''but.'' Of course, our last presenter, Mr. Banack, suggested some amendments. I'm not sure whether there were going to be some other suggestions if there had been time. Time is of the essence here, I gather. That's because of a procedural delay in the House of Commons. They didn't get the bill to us until last week. That's unfortunate, but there are some other things we should be talking about.

We've heard from a number of people that service level agreements, as provided in Bill C-30, have not worked, or people have not bothered to proceed with them because of the time it takes to negotiate them and the cost that goes with that negotiation. I'm searching the country for somebody who will say something nice about these service level agreements. Has anyone seen anything positive here that they can tell us about?

Mr. Cherewyk: I'll take that one.

Yes, I'm aware of companies that are exploring fully the concept of SLAs. I think when you hear that no one has signed one because they're too costly or the perception is that they don't provide what they need, you're hearing about some of the key concerns that have been raised since the concept was introduced and since Bill C-52 was introduced.

Let's first understand that this is a process that's very new to shippers in the agriculture industry. This is an unprecedented level of commitment to the contract with the carrier, so this is not something that they have ever entered before so they don't take the process lightly. They know it will be extensive. They know it will be comprehensive, and they want to make sure they're getting it right. When I say they're exploring the concept, the industry has made big investments into understanding exactly what they need from SLAs. They've made big investments into coordinating themselves so that they have a common view of what an SLA should contain for bulk shippers, for carload shippers, for inter-modal shippers, and they really are gearing up to see what it is they need to bring to the table when they pursue an actual agreement, when they start the negotiation with a carrier.

It is a big undertaking. They fully and completely understand that, and they're not taking it lightly. The industry is working on it.

There is some concern that the framework that was established and the guidance that was built into the legislation don't provide them with enough certainty as to what the outcome would be. Therefore, there is some risk associated with entering what is a very lengthy and potentially expensive negotiation so they want that guidance in there. They want the service obligations clarified so that, when you sit down and negotiate, you understand the framework within which you are negotiating. You understand that you have the right to assign performance standards against and that you can be assured that you have the ability to build in accountability, that you can hold the railway accountable for failing to perform against those clearly defined service obligations. Yes, there are some concerns that if we enter that very lengthy and potentially costly process, I may not get what I want. Therefore, the organizations and the shippers themselves are taking the process of developing regulations around the definition of operational terms very seriously. We expect to have that framework clarified so that, as we look ahead and as we hope to avoid the use of section 116 and the new provisions that have been added with respect to reimbursement of expenses, we have a contract that can clearly define each other's service obligations and the consequences of failing.

Mr. de Kemp: If I can add, senator, without those clearly defined definitions, no one is going to touch an SLA, certainly not my members, until such time as everyone is going to know what the rules are with respect to what each clause or what each word means.

When you talk about the amount of time, we recognize that time is of the essence. We're all asking for some things that obviously can't be amended; there is a general recognition that, because of the time constraints, we can't. If I could suggest, though, I would like to see a signal from the Senate, from this committee, that goes back with some kind of preamble that says, ''We recognize that we don't have the time because of the issue at play, but we would like to at least direct the Commons Standing Committee on Agriculture and Agri-Food, whether or not it's through the CTA review, that these issues be discussed and resolved.'' Send a clear message from this committee that those things be addressed and resolved, and I think that kind of puts everybody on notice.

Senator Mercer: Thank you very much; a good suggestion.

Mr. Bender?

Mr. Bender: He covered it quite well.

Senator Mercer: Mr. Banack, do you have anything to add?

Mr. Banack: Yes. From my understanding in talking to the grain companies and the other shippers, they're working on it on their side, but I think this is a one-sided negotiation. I don't think that the railways are really interested in coming to the table to discuss service level agreements to move forward. Canadian grain shippers are held at the mercy of their shippers. When we have only one railway to move that product, there is really no interest in them coming to the table to come to these service level agreements. As in any negotiation, I encourage the railways, and I encourage the government to encourage the railways, to move forward and be active in the development of service level agreements.

Senator Mercer: I think there is common agreement that we need a specific definition for ''adequate and suitable accommodation'' as well.

Mr. de Kemp, you said in your presentation that you've seen customers going elsewhere already. Give us some names or concrete examples.

Mr. de Kemp: Absolutely. One company in particular — I won't give out the name, but I talked to them yesterday — provides an awful lot of malting barley to go south and to go to China for their parent company. They have now had to originate upwards of 150,000 tonnes from Australia and Argentina because they can't get malting barley to go south for their brewer or to their brewing partner in China. It's a company that doesn't own assets. They don't have elevators, so they have to rely on the grain companies. The grain companies aren't getting the cars. Even when the grain companies are starting to get their cars, they're saying — and we can understand that — ''We need to move our wheat contracts first; we need to move our canola contracts first.'' So what do you do? They've had to pull the trigger because, again, it deals with certainty and reliability of supply. That's the first instance.

Regarding the second instance, I can speak as far as Canada Malting Company out of Calgary. They have their own fleet. I appreciate the comments from the member of CFA as far as the priority for process value-added, but for every tonne of malt it's 1.3 tonnes of grain. It's processed right at the plants in Western Canada. They move their malt by fleet to Columbia Containers and then offshore in containers. We have a backlog now of five or six weeks on the containers because of the port strike there with the truckers.

Senator Mercer: That's at the Port of Vancouver?

Mr. de Kemp: Yes, Port Metro Vancouver. Up until the OIC, historically, even during the cold weather, they used to get 40 supplementary cars over and above their fleet. They're not getting it now. They had to push hard to get 10 cars last week. All of that, for them and everybody else, it's Japan and Korea. We just came back from there. To say that we're working on the legislation and everything else, it's not like you can dump 300,000 or 500,000 tonnes of coal on the side of a dock. This is malt for beer breweries and they don't have storage capacity in the middle of Tokyo to last. They are just-in-time deliveries, just like the automakers.

The Chair: Could we shorten it a bit? There are a number of senators who want to ask questions.

Senator Plett: I have a number of questions. If you can specifically speak to it in a quick manner maybe, I can get through these.

Senator Mercer already mentioned about the amendments and I think Mr. de Kemp and Mr. Banack talked about changes; others have as well. Mr. de Kemp was clear that if we couldn't get these amendments through because of time; he understood that. Mr. Banack was a little more forceful about the amendment. My question would be to him.

This bill has a sunset clause of August 2016. In light of our time constraints, sir, we need this legislation to go through. We can point fingers at whoever was at fault, but we need this legislation to go through by June 2 because the order-in-council expires. If we are moving forward and trying to improve things, with the sunset clause, would you not agree that it's best to move this legislation through without it being amended?

Mr. Banack: We believe that there are some loopholes in the legislation that haven't been covered. Those things have to be covered whether it's through the regulation that follows as part of this or the regulation and the amendments of the act itself. We're very concerned. We have members of CFA, through our B.C. egg council, that are very concerned with the feed grain situation and they don't feel the bill meets that. Our producer car shippers, as you heard from Mr. Ken Eshpeter yesterday, are concerned that their concerns are not being met. We understand the order-in-council will expire June 2 and we must have this legislation in place, but it's important for us to bring our members' concerns forward that there are areas that aren't being met.

Senator Plett: I appreciate that and you did bring them forward very well — as long as we understand that we are somewhat handcuffed here.

Mr. Cherewyk, you talked about rail capacity. Can you explain that a bit? We seem to have the rail capacity. They're moving the grain now that they're supposed to move, are they not?

Mr. Cherewyk: First, let's talk about what the railways have said. They've said that they are now adhering to the order-in-council, that they're moving everything that they can move and that they're bumping up against the limits of the supply chain. What we have in front of us suggests that there's no evidence to support that claim. As of May 4, we have terminal elevator stocks in Vancouver at 63 per cent of their working capacity; Thunder Bay is at 73 per cent of its working capacity; Churchill is at 30 per cent of its working capacity. They are not bumping up against their limits. We know that they're not servicing the eastern corridor, the U.S. or Mexico, so have we seen additional capacity added? Absolutely not. We've seen a reallocation of their current and existing capacity, the capacity that has been short since September, to certain corridors, namely Vancouver, and that one is not even fully utilized. We still have some 24 vessels at port waiting at Port Metro Vancouver.

I could get into further detail in terms of order fulfillment, but we are not there with respect to meeting capacity needs for the industry.

Senator Plett: I'll quickly ask the other two questions and then Mr. Bender can get ready while Mr. de Kemp answers this question.

Mr. de Kemp, in your presentation you said that we need a fair and competitive rail company. We have two rail companies in Canada. We have a number of short lines. In light of the fact that we have two rail companies in Canada, what do you mean by a ''fair and competitive rail company'' and how can we establish that?

Before you answer, I'll just throw out one to Mr. Bender. One of the recommended changes that you would like to see is the corridor-specific requirements; that was quite important. The government has promised that, as part of the consideration when setting the new volume requirements on August 1, the corridor-specific requirements are going to be very much part of those negotiations. I would like you to comment on how you feel about that.

Mr. de Kemp: The third leg of what I said was fair, competitive and ''transparent.'' When you take the whole package together, and particularly on the transparency side, I would like to ask anyone — and no one has an answer to this — exactly how much rolling stock the railways have for all commodities, whether it's for the grain industry or for the mining industry, et cetera. How much power do they have? We have heard percentage numbers of how many locomotives they have reduced, or what have you, but no one has a fair shake as to what the actual numbers are going forward, even if we increase it 3 per cent a year. We talked about fair and competitive; the third leg of that is transparency.

Senator Plett: The transparency is important.

Mr. de Kemp: Absolutely. One particular company is cutting back. Yes, it will have an effect; absolutely.

I still, for the life of me, can't figure out, when it's minus 30-degree weather, why they're saying the air brakes don't work. We put rovers on Mars and it's minus 200 Celsius out there. The Energizer Bunny is still working on the batteries there, so I don't understand that one.

Senator Plett: We agree with you there.

Mr. Bender: With regard to ''corridor specific,'' we're pleased to hear that will be included. As Mr. Cherewyk already said, sales to the U.S. are no less important than sales to the coast or vice versa. We have partners in the Fraser Valley — I think Mr. Banack talked about them as well — the Animal Nutrition Association of Canada. They need their feed supplies as much as ports need to ship offshore. Corridor specific is essential. We need that legislation to ensure that all suppliers get what they need.

Senator Tardif: Thank you for being with us this afternoon and thank you for so clearly presenting the outstanding issues that still need to be addressed.

I would like to ask a question to Mr. Banack. I was struck by something you said. We've talked a lot about shipping for export purposes, but we've kind of forgotten about the domestic market. I was pleased that you brought out the importance of the livestock market, for example, and the necessity of making sure that our grain is sent to where it's needed for the livestock market, and I believe you indicated for the malt market as well.

You indicated as well that you felt it was important that there be an assignment of hopper cars for producer car shippers; is that correct? Maybe I've got those words wrong. They're not words I often use but I'm starting to learn the lingo. You said it has been a bumper year for producer cars.

I'm from Alberta and I know there is a lot of agriculture in northern Alberta as well as in southern and central Alberta. Are producer cars used by most producer farmers in Alberta? How does that fit in with short lines?

Mr. Banack: Producer car shippers are typically the users of short-line railways. Alberta has one short-line railway, Battle River Railway. You heard from Ken Eshpeter yesterday. He's the President of Battle River Railway. I'm a member. We do use our producer cars on that line.

Saskatchewan has 12 or 13 short-line railways that operate and there are a lot more producer cars there. The number of producer cars and the total amount of grain shipments are probably very small. Probably 5 per cent or less of the grain is shipped by producer cars. Many producers across the Prairies don't have access to sidings or real access to sidings, so producer cars aren't a big thing for many, many producers across Western Canada, but the producers who use them, studies have been done to show in our area when we have a producer car loading a building, it does bring our costs, our basis levels from our elevators, down.

It provides two opportunities. It provides us an opportunity to meet there. The grain shippers, the domestic market in Lower Mainland of B.C., that's where they're accessing most of their feed grains right now, from the producer car shippers and producer car lines, small lines, because your big grain companies, as Mr. Cherewyk and Mr. de Kemp said, are handling their products over top of where it's going in another place, so they're interested in filling their export markets without meeting the domestic market. Today, that's where the domestic markets are getting most of the grain they are getting on rail; it's from short lines and producer cars.

Senator Tardif: Do the short lines cover that distance? I thought yesterday one of our witnesses indicated that the length of the short lines was about 270 kilometres. That was considered a fairly long short line.

Mr. Banack: Yes. The short-line shippers only haul up to a site, and then for our line we hall it up to Kamloops. Outside the college is where the cars are dropped and CN moves them off to the other line. So the producer car shipper just runs a small branch line, the tributaries, and they come into the main system.

Senator Tardif: Do you feel that you've had enough cars available to you from the short line?

Mr. Banack: I'm sure Mr. Eshpeter said yesterday we're looking at — I think last time I talked to him they're looking at 2,000 cars. They are still 400 or 500 cars behind in this year's shipping at the moment. I'm sure Mr. Eshpeter had much better figures than that, but they're behind in where the cars are committed to.

Senator Tardif: Have you been able to get your grain to market, sir?

Mr. Banack: Our grain has been moving for us fairly well. We are behind a couple months on some of our products moving. We have a March contract yet for wheat that we haven't been able to move. Canola has been moving because of the demand through the system, the pull through the system. The wheat contracts in our area are substantially behind in just about every grain company even on the short-line railways.

Senator Tardif: Some of the witnesses that we heard this morning said that the increase in interswitching could create problems for the Canadian market. How would you feel about that? I don't know who wants to answer that. I know it provides more competition, but on the other hand it could be causing problems for some of our Canadian ports. We heard that this morning.

Mr. de Kemp: That was asked of our chairman, Brian Otto, back in the beginning of April at the standing committee, increasing the interswitching to 160 kilometres. His answer was that a very good friend who is quite senior in a certain railway said, ''Yes, you can do the interswitching, absolutely. You get it once. You try to get it a second time with the cars, if you're going to switch between one side into another, it will be very difficult. You will be able to do it once.'' Are they going to do it a second time? They may not want to pick up your railcars.

Senator Robichaud: Would you elaborate a bit more? They somehow complicate the interswitching?

Mr. de Kemp: I don't think it complicates it. I guess the signal he was trying to send or the message was, if you're going to move somebody else's cars some place — usually CN did and now it's going to CP — yes, you can do it the first time but try to do it again or even for other cars in the future — it's like an elephant; they forgive but they don't forget.

Senator Tardif: The fact the distances, the zones are going from 30 kilometres to 160?

Mr. de Kemp: I can't comment on distances.

Senator Tardif: Would anybody like to comment on that?

Mr. Bender: I think it opens that up a lot more. I think now there's maybe only six where both rails can access a grain delivery point. My number may not be right, but that expands that significantly when you do that. Greg may have a little bit more.

Senator Tardif: You don't see that as problematic from your perspective?

Mr. Bender: From our perspective, it adds competition, but I can't comment on the other side.

Senator Robichaud: Mr. Cherewyk, did I understand correctly that you said because of the order-in-council now in place, you are losing customers in the United States and Mexico?

Mr. Cherewyk: The challenge the companies are facing right now is that every railcar that's being ordered reflects demand from a customer for Canadian grain. When we see order shortfalls for the eastern corridor, Mexico, the U.S., we're seeing contracts that aren't being fulfilled and customer relationships that are at risk. So when those Canadian shippers are told that those are not preferred corridors and that they shouldn't bother ordering for delivery through those corridors, they're being told that they can't service those customers and they're being told that those contracts are in jeopardy. That's what they're facing today.

Senator Robichaud: It doesn't matter that Bill C-30 goes through in a very short time or not. It's not going to help, is it?

Mr. Cherewyk: The single point I made throughout those five minutes of formal comments was that we have to move beyond a broadly established target and start setting clear expectations with respect to all shippers moving products through all corridors, through to all destinations that deserve fair and equitable service. If we're going to make that statement and clearly set those expectations, we have to have a measures program in place that helps us determine whether or not we have achieved that goal. Right now we don't have that, so we're not seeing it achieved.

Senator Robichaud: When do you estimate we can see that?

Mr. Cherewyk: I heard from Senator Plett that the indication is that the next order will be accompanied by some expectations with respect to corridor volumes. I think that's a positive thing, but in addition to expectations being set with respect to movement through all corridors, we need to have a means of measuring that. We need to know what the demand was for movement through these corridors. We need to be able to measure on a timely basis how that demand is being met.

Senator Robichaud: Have you heard that from the minister?

Mr. Cherewyk: I would think the minister would have to agree that the order-in-council, while it was designed to get grain moving, is also designed to ensure that all shippers of Canadian grain and all customers of Canadian grain receive fair and equitable service.

Senator Robichaud: But that's not the situation that it created?

Mr. Cherewyk: That's the situation we're asking be addressed now that we have had some experience with the first order-in-council that was announced on March 7. With respect to the remainder of this order and all future orders that set minimum weekly or monthly targets, those clear expectations have to be set.

Senator Robichaud: You have recommended some amendments. I don't believe in Santa Claus any more so I don't think we can get amendments to this bill, but there should be some note somewhere to indicate that things should be looked at. Usually when we report the bill, we report the bill as amended, or if it's not amended it goes directly into third reading.

I now ask the chair, is there a way to have observations in our report on the bill? We have witnesses here and they would like to hear what we can do.

Senator Mercer: If I could, Mr. Chair, perhaps the question to the witnesses should be: Is Senator Robichaud is right?'' If we wanted amendments, we could probably propose them, but we wouldn't get them in and, if we were to hold it up, I'm not sure that I'd like to be the guy who is going to travel to Western Canada to explain that to farmers. I am not going to do that.

But it is quite common practice to attach observations to a bill going back, stating some of the things that we have learned from people like you. I know that is not what you want, but do you think it would help if we were able to attach some observations to the bill as we report it back? It has no weight other than to draw people's attention to some of the things that witnesses have told us.

The Chair: We have received comments made by these witnesses and other witnesses. The chair will consider that when we go to clause-by-clause study. After we go in camera in the next five minutes, there can be further discussion among the senators before we report to the house next week.

Do you have another question, Senator Robichaud?

Senator Robichaud: Just a comment. We will try.

Mr. Cherewyk: Thank you.

The Chair: Mr. Bender, Mr. de Kemp, Mr. Cherewyk and Mr. Banack, thank you very much for your comments and your views on Bill C-30, the proposed fair rail for grain farmers act.

With that, honourable senators, we will go in camera.

(The committee continued in camera.)