Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 14 - Evidence
OTTAWA, Thursday, June 16, 2016
The Standing Senate Committee on Agriculture and Forestry met this day at 8:01 a.m., to continue its study on international market access priorities for the Canadian agricultural and agri-food sector.
Senator Ghislain Maltais (Chair) in the chair.
[Translation]
The Chair: Welcome to this meeting of the Standing Senate Committee on Agriculture and Forestry. Before we continue our study this morning, since it's the committee's last meeting of this session, I would like to give a special thanks to the committee staff: our clerk, Kevin Pittman, Sylvina Danesi, clerk in training, the researchers of the Library of Parliament, the reporters, the interpreters and the control technicians who have been working with us since the beginning of the session. They do an excellent job, and they make it possible for us to broadcast our committee's meetings, thus enabling Canadians to follow Senate committees' work.
[English]
My name is Senator Ghislain Maltais from Quebec. I will ask senators to introduce themselves, beginning on my left.
Senator Mercer: I'm Senator Terry Mercer, deputy chair of the committee.
Before I give up the microphone, chair, I have a brief announcement. I had an opportunity to meet briefly with the Minister of Agriculture this morning and he asked me to relay to the committee that he's anxious to come see us. He apologizes because he has been travelling so much, but he will be happy to see us early in the fall.
Senator Merchant: I'm Pana Merchant, and I'm a senator from Saskatchewan.
Senator Beyak: Good morning, Senator Lynn Beyak, Ontario.
[Translation]
Senator Tardif: Senator Claudette Tardif from Alberta.
[English]
Senator Plett: Good morning, I'm Don Plett. I'm from Manitoba.
[Translation]
Senator Gagné: Raymonde Gagné from Manitoba.
Senator Pratte: André Pratte from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
[Translation]
The Chair: I would like to welcome Senator Gagné, who has become a member of our committee. Thank you for joining us. You will see that this is a very interesting committee.
[English]
This morning the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector.
[Translation]
This morning, we are hearing from the following witnesses: Scott Winter, Senior Economist, International Trade Policy Division, Department of Finance; Brad Loynachan, Director, Trade Policy, Canada Border Services Agency; Doug Forsyth, Executive Director, Strategic Trade Policy Division, Market and Industry Services Branch, Agriculture and Agri-Food Canada; Katharine Funtek, Executive Director, Trade Controls Policy Division, Global Affairs Canada; and Lyzette Lamondin, Acting Executive Director, Food Import Export and Consumer Protection Directorate, Canadian Food Inspection Agency.
Welcome, everyone. We will spend two hours with you this morning. We have been looking forward to your testimony, which is essential to the work of our committee. The senators are anxious to hear from you and ask you the necessary questions. I ask that you to be as brief as possible in your presentations, so that the senators can ask you questions, which will also be brief. We will begin with Mr. Forsyth.
[English]
Doug Forsyth, Executive Director, Strategic Trade Policy Division, Market and Industry Services Branch, Agriculture and Agri-Food Canada: Thank you very much, and good morning, everyone.
[Translation]
Mr. Chair, I am happy to be here today and speak to you on the issues surrounding the importation of spent fowl and its impact on the Canadian chicken industry. Agriculture and Agri-Food Canada is responsible for overall domestic agricultural policy and is the primary liaison between the Government of Canada and agriculture and agri- food stakeholders.
[English]
The chicken industry is an integral component of our agriculture and agri-food sector. There are over 2,600 chicken farmers located across Canada. In 2015, these farmers raised more than 660 million chickens, produced 1.1 billion kilograms of chicken meat and generated $2.4 billion in farm cash receipts, or about 4 per cent of total Canadian farm cash receipts.
As I'm sure you are all aware, Canada's chicken industry operates under supply management. The goal of supply management is to match production with anticipated Canadian demand in order to ensure that there are no surpluses or shortages on the domestic market. Under supply management, producers receive a negotiated minimum price, which enables them to cover their cost of production and realize a reasonable rate of return on their labour and investments.
Supply management relies on three key pillars: Production control, producer price control and import control. All three of these pillars are essential to preserving the integrity of the system.
With respect to import controls under the North American Free Trade Agreement, Canada allows access to a defined quantity of chicken products to be imported, free of tariffs, annually through the use of tariff rate quotas. The volume of imports is equal to 7.5 per cent of the previous year's total domestic production. For 2016, this corresponds to approximately 83 million kilograms. Imports above this access level are subject to higher rates of duty. There are exceptions, such as approved supplementary imports in the case of market shortages.
Predictable imports are essential to the effectiveness of supply management and necessary to accurately determine the national supply requirements and avoid disruptive shortages or surpluses on the Canadian market. The national production quota takes into account imports when trying to match Canadian demand.
Spent fowls are egg-laying or breeder hens that have completed their egg production cycle and, having reached the end of their productive lives, are sent for slaughter. Spent fowl meat, which is generally of lesser quality than broiler chicken meat and therefore less expensive, is used mainly in the production of processed products, such as sausages, soups and stews.
Spent fowl meat is not subject to import controls or quantitative restrictions and can be imported duty-free when produced in the United States. This has been the case since the Canada-U.S. Free Trade Agreement was signed in 1987. On the other hand, broiler chicken meat imports are controlled through tariff rate quotas, and effective over-access duty rates of up to 253 per cent.
Imports of products declared as spent fowl increased 55 per cent from 2009 to 2015, while Canadian chicken production increased 9 per cent over the same period. In 2015, imports of spent fowl corresponded to approximately 10 per cent of total chicken production in Canada.
[Translation]
The Canadian chicken industry — producers and processors alike — have repeatedly expressed concerns that import controls for broiler chicken are being circumvented by some importers who declare broiler chicken meat as spent fowl in order to avoid import controls and enter Canada duty-free. Industry believes this to be a key reason for the significant increase in spent fowl imports in recent years, specifically imports of breast meat, as it has the most economic value. Imports of breast meat declared as spent fowl have increased by 318 per cent since 2009.
Over the past few years, chicken farmers have indicated that import predictability has diminished owing to the increasing imports of products declared as spent fowl and the doubts surrounding the validity of those imports.
The Canadian chicken industry is concerned this trend will continue to lead to more broiler chicken meat being imported duty-free and thus displacing domestic chicken production. As broiler chicken meat and spent fowl meat are visually indistinguishable, it is difficult to implement practical and efficient means of ensuring the legitimacy of spent fowl imports.
[English]
One possible tool that the industry has raised to help manage this issue is the United States Department of Agriculture's Fowl Meat Verification Program. It is a voluntary program that is available to American producers and processors that requests third-party verification to certify that the meat being produced and processed in their plant is fowl meat, properly labelled and does not contain broiler meat.
This program was put in place at the request of U.S. spent fowl processors, who had expressed concerns that fraudulent activity was destroying legitimate production and trade of spent fowl. Currently, five U.S. companies have applied and been approved under the USDA's Fowl Meat Verification Program.
Agriculture and Agri-Food Canada is leading an interdepartmental working group to explore the issues surrounding the imports of spent fowl and develop options that would ensure the legitimacy of spent fowl imports and improve import predictability for the chicken industry. The working group includes Agriculture and Agri-Food Canada, the Canada Border Services Agency, the Canadian Food Inspection Agency, Global Affairs Canada and Finance Canada.
One option being explored is to add spent fowl to the Import Control List in order to facilitate the implementation of a certification requirement. I will let my colleague from Global Affairs Canada provide more detail on this option, as it would fall under their purview.
[Translation]
In closing, I would like to assure you that the government recognizes the importance of import controls for supply managed products, and government departments are working in collaboration to address this issue.
Thank you for your time. I appreciate the opportunity to appear before you today, and it will be a pleasure to answer any questions you may have.
[English]
The Chair: Before we continue, I would like to introduce a new member of the committee, Senator Victor Oh from Ontario.
We will now hear from Ms. Funtek.
Katharine Funtek, Executive Director, Trade Controls Policy Division, Global Affairs Canada: Good morning. Thank you, Mr. Chair and senators, for the invitation to speak to you about Global Affairs Canada's mandate to implement import controls under the Export and Import Permits Act in support of Canada's system of supply management for chicken and chicken products and, in particular, about issues regarding imports of spent fowl. I'll provide a brief overview of the mandate of Global Affairs Canada under the act and provide background on import controls related to chicken products.
As noted by my colleague from Agriculture and Agri-Food Canada, Canada's system of supply management relies on the three pillars of production disciplines, price controls and import controls. The import controls are administered by Global Affairs Canada under the Export and Import Permits Act.
The act enables the Government of Canada to do a variety of things: to control exports and imports of certain military, dual-use and strategic goods and technology, to ensure security of supply for defence and other needs, and also to regulate the import and export of goods controlled for economic reasons. An example would be to implement free trade agreements and to support our supply-managed system.
The act falls under the authority of the Minister of Foreign Affairs, but he is assisted by the Minister of International Trade who takes responsibility for export and import controls established further to international agreements or for economic reasons. The act empowers the Governor-in-Council to establish lists to control the import and export of goods and to add goods to those lists for a variety of purposes. Today I will focus on the Import Control List.
There are six purposes under the act for which the Governor-in-Council may deem it necessary to control an item by placing it on the Import Control List. There are two purposes that apply to supply-managed goods, including chicken: first, to implement an intergovernmental arrangement or commitment such as NAFTA; second, to implement any action taken under the Farm Products Marketing Agency's Act specifically by restricting the importation in any form of a like product to one produced or marketed in Canada. Imported chicken, for example, is a like product to domestically produced or marketed chicken.
Chicken was placed on the Import Control List in 1979, and a global import quota was introduced. Spent fowl was explicitly excluded from the Import Control List and from the products covered by the quota as it was not considered substitutable for broiler chicken. The exclusion of spent fowl from the import controls was reaffirmed in the Canada- U.S. Free Trade Agreement, which came into force in 1987. Annex 706 of that agreement states that chicken and chicken products do not include "spent fowl commonly called stewing hens.'' This exclusion was subsequently incorporated into NAFTA.
Pursuant to the Uruguay round of negotiations, which established the World Trade Organization, Canada converted its quotas to tariff rate quotas, including the quota for broiler chicken. Once again, spent fowl was excluded from coverage under that tariff rate quota.
For those who may be unfamiliar with tariff rate quotas, a tariff rate quota allows for a specific quantity of goods to be imported at low or zero rates of duty within the tariff rate quota. This is generally referred to as "within access rate.'' Unlike absolute quotas, a tariff rate quota system allows for goods to be imported outside of or apart from the tariff rate quota. While there are no quantitative restrictions on the quantity of goods that may be imported outside of or apart from the tariff rate quota, those imports are subject to much higher rates of duty.
By way of example, chicken imported within the tariff rate quota may enter Canada at duty rates of between 0 per cent and 7.5 per cent while, as my colleague mentioned, over-access chicken imports are subject to a duty rate of between 238 per cent and 253 per cent. As I noted earlier, spent fowl has never been import-controlled and may enter Canada from the United States and a number of other countries at a zero rate of duty — for example, in addition to the United States, from Chile, Peru, Colombia, and the least developed countries.
Imports of spent fowl from countries with which Canada does not have some sort of preferential arrangement, face most-favoured nation duty rates of up to 9 per cent, depending on the product. This is well below the 238 per cent to 253 per cent over-access rate for chicken.
Due to concerns raised regarding potential circumvention of import controls on chicken, the government is examining a number of options to enhance implementation of border controls to ensure that spent fowl is not being misclassified or misrepresented as chicken. One option that some industry stakeholders, such as the Chicken Farmers of Canada, have suggested in the past is to take some sort of action under the Export and Import Permits Act to facilitate the implementation of a certification requirement that would assist border officials in distinguishing between imports of spent fowl and chicken. The feasibility of such an option is currently under review.
However, as I noted earlier spent fowl was specifically excluded from import controls on chicken under NAFTA and the WTO agreement, so imports of spent fowl will continue to enter Canada with no quantitative restrictions. Given that the majority of spent fowl imports come from the United States, imports would continue to come in at a zero rate of duty.
In closing, I note that Global Affairs Canada will continue to work with partners in other departments and with industry to support and implement government decisions in relation to Canada's system of supply management. Thank you very much for your time. I would be very happy to answer any questions you may have.
The Chair: We will go to Mr. Loynachan.
Brad Loynachan, Director, Trade Policy, Canada Border Services Agency: Good morning and thank you, Mr. Chair and honourable senators.
[Translation]
My name is Brad Loynachan, and I am the Director of Trade Policy within the Programs Branch at the Canada Border Services Agency. Thank you for the opportunity to contribute to the committee's examination of the issues around the importation of spent fowl.
[English]
The Canada Border Services Agency recognizes the need for Canada's chicken producers to be competitive and takes its role in supporting Canada's supply management system very seriously.
The Canada Border Services Agency is responsible for administering the customs tariff; however, legislative and policy responsibility for the customs tariff rests with Finance Canada. The agency also administers other Government of Canada acts that govern the admissibility of goods into Canada. As part of that mandate, the agency is also responsible for ensuring the proper tariff classification of goods being imported into Canada.
Supply-managed goods can be imported in accordance with the provisions of the customs tariff, based on quantities negotiated at the World Trade Organization and under free trade agreements. As already mentioned, Global Affairs Canada manages the allocation of those quantities through the issuance of import permits.
As my colleagues have indicated, spent fowl is not subject to Canada's supply management system and can be imported into Canada without quantitative restriction. Spent fowl is subject to a normal most-favoured-nation rate of duty of up to 9 per cent, while spent fowl originating in the United States can lawfully enter Canada duty free under the North American Free Trade Agreement.
The proper tariff classification of chicken importations at the border is complex, as there is no means of visually distinguishing between broiler meat and spent fowl meat at the time of importation. Based on this limitation, the Canada Border Services Agency employs a robust, risk-based, post-importation verification program that relies on a books-and-records verification of import documents, such as purchase orders, accounting documents and contracts.
Between 2012 and 2014, the agency conducted 25 such compliance verifications regarding the tariff classification of importations of spent fowl. None of these verifications found non-compliance.
Since April 2016, the Canada Border Services Agency has initiated additional targeted tariff classification verifications of spent fowl. Should these verifications determine that broiler meat is being improperly classified as spent fowl, the agency may then initiate broader national verifications.
On their own initiative, industry developed a DNA test that may scientifically differentiate between broiler meat and spent fowl. The Government of Canada continues to consider the feasibility of DNA testing as a monitoring tool to ensure the proper tariff classification of importations of spent fowl. To determine the operational feasibility of the DNA testing, the government must evaluate the following key elements: confirmation of the reliability of the proposed DNA test; the acceptance of such tests by external reviewing bodies, such as the Canadian International Trade Tribunal and the courts; the practicality of sampling and testing spent fowl importation based on the number of importations annually; and any negative impacts such sampling could have.
While DNA testing might be a valuable compliance tool in monitoring the classification of importations of spent fowl and act as a deterrent to non-compliance, it would not constitute an import requirement as would a formal certification process.
Should a program for the certification of spent fowl importations be implemented by the Government of Canada, the agency would be responsible for ensuring that importations have any required certificate and permit, and would include those documents in our verification activities.
[Translation]
Mr. Chair, the Canada Border Services Agency recognizes the concerns of Canada's chicken producers and will continue to fully support the Government of Canada's efforts to address this important issue.
[English]
This concludes my presentation, and I would be pleased to take any questions the committee may have.
The Chair: Thank you very much, Mr. Loynachan. The first question will be from the deputy chair.
Senator Mercer: Good morning, everyone. We've spent a lot of time talking about spent fowl around this table — more than any of us ever thought we would or probably would like to. It's a concern.
We've heard some startling numbers about the export of spent fowl in the United States, where they have magically been able to export well over 100 per cent of the spent fowl that's produced in the United States. It's a good deal if you can export more than you actually produce. Of course, most of it is coming here.
We have a problem. The trouble is we don't know how big the problem is. It would seem to some of us around this table that we need to have spot checks at the border. We need to take the DNA testing that's now available and do some spot checks.
The industry is not that big. The drums would beat pretty fast if you did some spot checks at several border crossings for spent fowl to see if it was actually spent fowl. So why aren't we doing that? It's a simple question.
Mr. Loynachan: I recognize the importance of your comments and industry concern around this. As I pointed out in my presentation, the Government of Canada is considering DNA testing as a possible option to address this issue.
Some of the considerations going forward relate to the practicality and operational feasibility of that testing. I would also comment that although, as you pointed out, this could be an effective monitoring tool or deterrent, word does spread quickly, as you point out. However, that measure would not constitute an import-control requirement. I think the Government of Canada is looking holistically at options or a solution that would further regulate these importations as opposed to simply looking at compliance or monitoring tools.
Senator Mercer: We continue to sign trade agreements: The TPP is being discussed, and the Canada-European Union Comprehensive Economic and Trade Agreement, all of these. Every time we do, we have to give up a little bit to get something. We understand how negotiations work.
We keep chipping away at supply management. I have to say that we've been impressed around this table with the attitude of the people in the supply management business — the farmers who produce under supply management — and their willingness and understanding to support things like the TPP and the Canada-European Union free trade agreement, understanding that this is good for the country even if it chips away a little bit at supply management.
I don't think we need to have DNA testing done at every border crossing in the country. We need movable equipment that goes from border site to border site, picking and choosing. You know better than I do which border crossings are the ones that are most used for this product. You don't have to have DNA testing equipment at every border crossing. If you move it around, as I said, the news will get out there pretty quickly: You don't know where it is or when it's going to be tested. One or two prosecutions, even one prosecution would send a very strong message to the people who are breaking the law — and it is the law.
You say that the government is considering this. Do you know where the holdup is?
Mr. Loynachan: Specifically, no, keeping in mind the interdepartmental working group that has been formed to address or look at options to better manage importations of spent fowl. There are a couple of viable options on the table, and DNA testing is certainly one of those. I appreciate your comments. There's a lot of validity in terms of your references to, again, it acting as a deterrent.
Last fiscal year, there were approximately 3,340 specific importations of spent fowl.
I pointed out the current measures being taken by the Canada Border Services Agency to verify. We do actually look at specific high-risk ports, as you point out, and specific importers.
The agency recognizes and appreciates your comments 100 per cent regarding the importance that DNA testing may have.
Senator Mercer: My last question as to where the hold-up is is important because we have an opportunity here to have someone sitting there who would be a decision maker. We need to know who that decision maker is in order to have him or her sitting in that chair there so we can put the question to the appropriate person.
We're looking for your help to identify where the roadblock is or whose desk it is sitting on at the current time. I'm the longest serving member of this committee, and I am really tired of talking about spent fowl. I want to move on to some other important things.
If anybody has any idea of how that works — perhaps you can't say with the cameras running — I'll be around at the break, too.
Mr. Forsyth: I can respond to that, senator.
As my colleague from CBSA rightly noted, it's a collective Government-of-Canada decision that needs to be taken on how to manage it. We are, as part of the interdepartmental working group, coming up with options and recommendations, and they will go forward to ministers for decisions.
Senator Mercer: So it's on a minister's desk?
Mr. Forsyth: Not yet. There are no recommendations on a minister's desk.
Senator Mercer: As I said at the beginning of the meeting, the Minister of Agriculture is coming to see us in the fall. I will again see him sometime over the summer, as I normally do, and I will put in his ear that question number 1 from me will be about this problem, and perhaps between now and then the minister will be able to come up with an answer for us. Thank you.
Senator Ogilvie: I'm going to continue this line of questioning. The importance of it is obvious because, if you can bring in spent fowl at zero tariff and then repackage it and sell it as breast meat, the unfair competitive advantage within the Canadian market is obvious.
With regard to this ability or inability to detect spent fowl at the border, I note that Mr. Forsyth says that the imports of breast meat declared as spent fowl increased 318 per cent from 2009 to 2015, but Mr. Loynachan says that 25 investigations were looking at a paper trail — I don't consider that really a substantial traceability issue — and that no issues of non-compliance of labelling were detected in that.
Mr. Forsyth, what tests are used that lead to your observation that the amount of breast meat labelled incorrectly as spent fowl has increased 318 per cent over that period of time? What tests are used there?
Mr. Forsyth: I wasn't referring to any tests, per se. What I was noting was that the amount of spent fowl that has been imported into the country has increased. There's no question about that.
Senator Ogilvie: It says imports of breast meat declared as spent fowl.
Mr. Forsyth: I can ask my colleague to help out with that in terms of what happens when the goods come across the border, but what I was referring to were the statistics that we have. An importer will potentially bring in breast meat and claim it as spent fowl in order to claim the duty rate. I don't think there's any question about that.
Senator Ogilvie: How is that determined?
Mr. Forsyth: By documentation that they present at the border.
Senator Ogilvie: So you are able to look at the declaration and go back and determine that the declaration was false?
Mr. Loynachan: No.
Senator Ogilvie: So it's labelled, in the end, as spent fowl, but it was actually breast meat?
Mr. Loynachan: Senator, if I could clarify, I'm not entirely sure that this is a labelling issue. More specifically, it's how goods being imported into Canada are being declared.
The real question is whether or not broiler meat that is subject to import quotas under the supply management system is being improperly reported as spent fowl and whether there is circumvention. At the border, or at the time of importation into Canada, importers have a responsibility under the law to properly report goods to the government. The CBSA does actually look at that declaration to try to ensure that it is correct.
As I pointed out, one of the obstacles or challenges that our organization faces is the fact that you cannot visually distinguish, at the time of importation —
Senator Ogilvie: I understand all of that. That's not the issue for me.
I'm a relatively simple country boy here. It says imports of breast meat declared as spent fowl.
Does that mean that, at the border, they actually declared that it's labelled as spent fowl but actually contained — so they voluntarily reported the false labelling? Is that correct?
Mr. Loynachan: This may be the case.
Senator Ogilvie: All right. My issue was: How is it determined? And it's not determined by any investigative method that we had. It's in the declaration process.
I want to come back to a second part, and that is the discussion about why it's taken Senator Mercer's entire life on the committee here to simply repeat the same things, bureaucratic bafflegab, as to what agency is or is not responsible for this issue. You're talking about the possibility of developing DNA tests, and in your own report you say, "On their own initiative, industry initiated the development of a DNA test that may scientifically differentiate between broiler meat and spent fowl.'' I assume they have not yet reached a definitive test at this point.
Have you or the Government of Canada agencies that you referred to that you're involved with initiated a specific research contract with a well-recognized DNA lab in this country, or anywhere else, to develop a test that would show a change in DNA, a specific DNA molecule or a protein product that changes significantly with the age of the chicken?
Mr. Loynachan: Thank you for that. In a short answer, no, the Government of Canada has not further engaged anybody in terms of DNA testing. However, I will qualify that the Chicken Farmers of Canada, in collaboration with universities in Canada and the private sector, have actually brought forward a proposed test that we will consider in terms of addressing this issue of imports into the country.
They've presented to us. We do see a kind of validity in that. However, as I pointed out, the government would need to look at the reliability of that test. As you know, any trade decision is subject to review by external bodies that verify the classification of goods imported, specifically the CITT, the Canadian International Trade Tribunal, or the courts.
We would need to also legally ensure that that test was sound and that the government would be solid in its decision in terms of reclassification of those goods.
Senator Ogilvie: I agree entirely with what you've just said.
I can take from it that it's at the point where there is a prototype test that has entered or is about to enter the verification stage. That's real progress. Thank you very much.
Senator Plett: Mr. Forsyth, in his presentation, said, "As broiler chicken meat and spent fowl meat are visually indistinguishable. . . .''
Ms. Funtek, in her brief, said:
Broiler chicken was placed on the Import Control List in 1979 and global import quota was introduced. "Spent fowl'' was explicitly excluded from the Import Control List and from the products covered by the quota, as it was not considered to be substitutable for broiler chicken.
We've talked about 300-some per cent increases. I have a few numbers here. Spent fowl imports, from September 2013 to April 2014, were 51 million kilograms. In the following year, they totaled 55 million kilograms. In that same period of time this last year, it jumped to 81 million kilograms.
We have had producers in here who have told us that this chicken is being brought in illegally, and you're telling us the same thing and that it has been so for a long time.
I have a couple of questions. How do we know that what is being brought in is, in fact, spent fowl when it is indistinguishable from broiler meat? Someone distinguished that somewhere, or we wouldn't have these numbers and we wouldn't know that it is being smuggled in. You're telling us that we may or may not do some DNA testing, and sometime we're going to have a document on a minister's desk.
I was part of the previous government, and this was a problem then. We did nothing about it, clearly, and this government is doing no more about it and we're being told it may be on a minister's desk but it isn't yet.
We know this is a problem. This has been a problem for years. Is somebody somewhere tasting the broiler meat and finding that out? If they are, then why in the world are we not going back to the person who brought that piece of broiler meat in labelled as spent fowl and throwing them in jail? If we did that a couple of times, maybe this garbage would stop.
How do you know that spent fowl is being brought in illegally and that it is, in fact, broiler meat? How do you know that?
Mr. Loynachan: Thank you for your comments. I appreciate them.
In terms of ascertaining that broiler meat is, in fact, being mis-declared as spent fowl, that is a big question. As I pointed out, between 2012 and 2014, based on industry concerns, the CBSA conducted books-and-records verifications in 25 individual cases that did not find non-compliance.
I respect, clearly, the import data based on U.S. production and some of the numbers around domestic availability of broiler meat, and that there are industry concerns. The agency continues, based on those concerns, to target high risk or further verify such importations.
In terms of the government clearly identifying this problem, I'm unable to fulsomely respond to that question.
Senator Plett: I have a suggestion for you. Vernon Froese is one of the heads of the Manitoba Chicken Producers, and I'm sure we have people in similar positions in every other province. I bet if you asked him he would have a good suggestion for how we could handle this, and maybe he would stand at the border and check the stuff coming across. He seems to know exactly how much is coming in illegally.
Yet we seem to have a bureaucracy that says we should consider some DNA testing down the road, and maybe that will work because we just don't know how in the world we're going to do this.
Gentlemen, ladies, I haven't been on this committee for as many years as Senator Mercer has, but I have been here for seven years. I have heard the same answers: Let's do some DNA testing, let's figure out how we can do this and let's figure out how we can do that.
I would suggest you ask the farmers how we can do this, because I bet they would have a good answer for you.
I'm sorry, Mr. Forsyth, did you want to respond to my rant?
Mr. Forsyth: Yes. It was a good rant, thank you.
I want to be clear that we work very closely with Canadian stakeholders and we meet very often with the Chicken Farmers of Canada. We have sat down with them a number of times. I know you don't want to hear any more about the testing they developed, but we have heard from them as well and we are trying to come up with a workable solution.
I just want to remind everyone around the table that there are legitimate companies that use spent fowl and manufacture products here. I'm sure you would agree that we want to continue that legitimate use of spent fowl and it's just a matter of determining how we continue those importations and limit the other ones.
Senator Plett: Even the chicken farmers would say that if you want to use it in soup, go ahead and send it across. I don't think that's an issue.
I'm going to deviate from spent fowl for a second because I'm tired of talking about it.
I'm going to go to another issue that I'm tired of talking about, and it has to do the pork industry because we have CBSA here and I'm constantly being told that is also their fault.
I'm from Manitoba, as I said. I don't know whether it's really something to brag about, but we're the hog capital of the country. We export hogs, and when we put a load of hogs into a trailer we also put Canadian straw into that trailer. We put Canadian pigs into that trailer, and they leave Canadian manure in that trailer. There's Canadian feed in that trailer. When that trailer drives across into the United States, nothing but the wheels ever touches U.S. soil.
At the other end, these pigs are unloaded into the barn, the ramps are slid back in and the truck driver washes his boots and throws them in his cubby-hole and drives back to the Canadian border. When he gets there, he is told he cannot go across the border because he has not washed his truck with American water. He says he doesn't want to wash his truck with American water because they use recycled water, and there's a whole lot of germs and other stuff left in that recycled truck wash. He doesn't want to wash his truck there because he will blow all those germs left on his truck when it comes into Canada. Then he has to go to his truck wash in Canada and make sure he disinfects the truck again because of all the germs he's picked up.
This has been a problem for a while. A couple of years ago I was very involved in this matter with the Minister of Public Works and CFIA, and we came up with a perfect solution: That truck will come back to the border, it will be sealed as we do with trucks every day, and then it has to have an appointment at a Canadian truck wash and he has to go straight there. CBSA and/or CFIA would actually have inspectors waiting there to make sure that truck shows up. Then he washes it in that Canadian truck wash. It's a perfect solution, but that's been taken away from them.
Now these farmers and truck drivers are saying they will not wash their trucks with this recycled water, so they're going hundreds of miles out of their way to find a suitable truck wash. Then they come to Canada and they do it again anyway at $400 or $500 per wash.
Why can we not come up with a simple solution like the one I just suggested, which worked absolutely fine? Going back in the other direction, we've got porcine epidemic diarrhea, PED, again and we're washing these trucks in the United States. Why can we not continue with the solution that we had?
Mr. Loynachan: Thank you, senator. I understand the situation and certainly would like to state that the CBSA, as I mentioned earlier, is responsible for administering many pieces of legislation on behalf of other government departments.
In terms of the process for the sanitary entry of equipment or goods into the country, that is the particular responsibility of my colleagues at the CFIA, so I would turn to them for a more fulsome response.
Senator Plett: At least you pointed to people in the room as opposed to somebody somewhere else. I appreciate that.
Lyzette Lamondin, Acting Executive Director, Food Import Export and Consumer Protection Directorate, Canadian Food Inspection Agency: I'm almost afraid to say that I am not the expert right now on animal health and the CFIA. I'm in the food space, so I'm going to cover myself with that.
We were aware that this would come up and we are certainly more than aware that it is a concern to Manitoba. It's certainly coming up in the press.
The requirements that you refer to, what we're doing and what we've gone back to of washing in the United States first, as the control measure, and then coming over to Canada had been in place since the 1990s. It was only in 2014 that the temporary measures were put in on the Canadian side.
I will tell you that our animal health people do not easily take chances with animal health risks. We are also the ones who have to respond when it happens and we go into gear. The return was done after some rigorous scientific analysis that gave them the comfort level that going back to the other way, plus the old data, would protect the Canadian system.
Having said that, I know this continues to be a concern, in particular for Manitoba. It is being raised quite a bit and discussed with Manitoba officials. A federal-provincial-territorial working group has continued to look at best control measures. Whether you're talking about food safety, animal health or plant health, it's always an element to looking at the most efficient, effective and cost-effective point of control. I can assure you that a number of scientific minds that are very good at this stuff are looking at the options right now, both in the CFIA and the provinces and territories.
While I don't have the answer and can't speak specifically to PED or swine health risks, I can assure you that this is being discussed and is given extreme consideration by the scientists within the agency and with our partners
Senator Plett: I have a closing comment, chair, and then I'm done with my rant.
I would suggest to you, ma'am, as I did to others about spent fowl, that maybe we should talk to the farmers and the truck drivers to ask them for their opinion because I think they have a better idea. They don't want to transfer diseases any more than you want diseases transferred.
Let's talk to the people on the ground and take their advice.
[Translation]
Senator Dagenais: I will not come back to the issue of spent fowl, but I am under the impression that it is a form of dumping of American products. I will go further and say that it is a form of fraud against consumers, and it must rob Canada of many jobs.
That said, my question is for Mr. Loynachan. Is the U.S. doing what Canada does — allowing food into the country and making only random checks? Does that mean that our producers have more difficulty bringing their products to the U.S. market, or do Americans do more checks? As travellers crossing the border, we feel that we are being checked out more closely by the Americans, who have new equipment, than when we enter Canada.
[English]
Mr. Loynachan: Unfortunately, I am unable to confirm or deny the rigour of U.S. controls around the import of spent fowl, the number of inspections and those measures in place from a CBSA or USCBP, customs border protection, lens.
In terms of numbers and statistics of those imports into the United States, I am unfamiliar as well. I'm not sure whether my colleagues at Agriculture and Agri-Food Canada would have any of those details today. If not, the CBSA, or collectively, we would be happy to pull that information together, should the committee wish, and provide it in a written follow-up statement.
[Translation]
Senator Dagenais: Mr. Loynachan, we know that import control comes under the responsibility of the Canada Border Services Agency, but, if I have understood your presentation correctly — and correct me if I am wrong — there are no representatives of the departments of health or agriculture.
Who exercises that kind of control on either side of the border when it comes to the majority of food products arriving from the United States and Mexico? In addition, is it normal that there are no Health Canada officers at our border crossings to carry out the checks? If that is the case, can we improve our border controls?
[English]
Mr. Loynachan: Clearly, I want to assure you that all of the organizations at this table work collaboratively, although the Canada Border Services Agency is primarily responsible for import controls, as I pointed out, administering 100 or more pieces of Canadian legislation or acts on behalf of partners. I will tell you that we rely on and relay as required.
Yes, at certain times there are memorandums of understanding between the CBSA and various organizations in terms of specific work. For instance, there is an existing memorandum of understanding between the CFIA and the CBSA. Some of those measures deal with high-risk goods and define roles and responsibilities. Partners become engaged at points of entry in certain situations.
[Translation]
The Chair: We have five minutes left and five senators remaining. So I will extend the question period by 10 minutes, but that is all the time we have. I ask the senators and the witnesses to keep their questions and answers brief.
[English]
Senator Oh: The spent fowl problem has been going on for many years. Do you have any idea how much revenue the Canadian government has lost and how many jobs affecting the Chicken Farmers of Canada have been lost? It seems we are talking here, but they are still coming by the truckload into Canada. The revenue loss is ongoing every day. Can you advise the committee?
Mr. Forsyth: We don't have any of those calculations. As a reminder, there are legitimate importations of spent fowl. We have not done a calculation to find the difference between legitimate and illegitimate and what those revenue losses might be. We have not done that calculation.
[Translation]
The Chair: Mr. Forsyth, could you provide the committee with those figures, so that we can pass them on to Senator Oh?
[English]
Mr. Forsyth: Yes, we could try.
Senator Tardif: I am totally in agreement with the comments that have been made by my colleagues in respect of spent fowl and the concerns we have. I want to quickly raise another issue.
Many witnesses have expressed to us their concerns with the lack of harmonization of inspection rules between Canada and the U.S. related to produce at the border.
What is being done to improve harmonization of inspection rules for produce at the border?
Ms. Lamondin: Quite a bit of work is being done right now in Canada and the U.S. Food and Drug Administration that involves produce and a number of processed products and the USDA, which is meat and catfish, ironically.
Under the Regulatory Cooperation Council, we are doing a considerable amount of work to try to align our regulations.
With the Food and Drug Administration, in particular, we just signed last month the Food Safety Systems Recognition Arrangement, which recognizes that food is essentially produced and inspected in the same ways in both countries to provide the same level of protection. That will actually allow us to develop, underneath that, even more detailed implementation strategies that include how we inspect, how we recall and how we move forward on that.
There's probably more happening in the last couple of years, in terms of trying to create alignment on food, than we've seen in decades.
Senator Tardif: I'll have to leave it at that, chair. Thank you.
Senator Beyak: I have a different take than my colleagues on what I heard from you. I am concerned about spent fowl, as well, because we've heard from so many witnesses that it is a problem, but to me the increase could be increased use of spent fowl for processed food. With all the single families now, all the people working and that processed foods taste so much better than 10 or 20 years ago. Could it be legitimate? We haven't ascertained, have we, that spent fowl is being labelled broiler meat?
Second, I was only 30 years old in 1979, so this is going back a long way. Do you have any way of knowing who decided that they were easily not seen to be the same, broiler meat or spent fowl? We didn't have DNA back then, obviously. Someone decided they were different. How? They look the same to me.
Mr. Forsyth: I'll take your first point first. I think you're absolutely correct. As I mentioned before, there is legitimate use for spent fowl. We have seen food processing and manufacturing increase in the country over the last number of years, so we would expect to see some importation of spent fowl. I would classify that as legitimate importation of spent fowl. That number will be part of the increase, there's no question about that.
I think we're continuing to examine exactly what the difference is between the legitimate and the illegitimate, but I think your point is absolutely correct: Legitimate use has increased over the last few years.
I don't think any of us were in government in 1979, so I'm not sure of the history of the reason for not including spent fowl at the time, although I think you're absolutely correct that it had to do with the fact that, at that time, the production processes were not as advanced as they are now. Spent fowl at that time was very much used just for soup, and its use has increased over the years, there's no doubt about that.
[Translation]
The Chair: Mr. Forsyth, could you provide additional information to the committee in response to Senator Dagenais' question?
I want to thank all five of you for testifying today. Senators Plett and Mercer apparently have other questions for you. We look forward to hearing from you again in our committee.
[English]
Senator Mercer (Deputy Chair) in the chair.
The Deputy Chair: I'd like to welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Senator Terry Mercer. I'm the deputy chair of the committee, and I'm from Nova Scotia.
Today the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector. Canada's agriculture and agri-food sector is an important part of the country's economy. In 2014, the sector accounted for one in eight jobs in Canada, employing over 2.3 million people and producing close to 6.6 per cent of Canada's gross domestic product.
Internationally, the Canadian agriculture and agri-food sector was responsible for 3.6 per cent of global exports of agri-food products. In 2014, Canada was the fifth largest exporter of agri-food products globally.
Canada is engaged in several free trade agreements. To date, 11 free trade agreements are in force. As well, the Canada-European Union Comprehensive Economic and Trade Agreement, the Trans-Pacific Partnership and the Canada-Ukraine Free Trade Agreement have been concluded but not yet ratified. There are eight free trade agreement negotiations ongoing.
The federal government is also undertaking four exploratory trade discussions with Turkey, Thailand, the Philippines and the member states of Mercosur, which include Argentina, Brazil, Paraguay and Uruguay.
I'll ask my colleagues to introduce themselves, and then we'll get to the witnesses.
Senator Beyak: Senator Lynn Beyak from Ontario.
Senator Tardif: Claudette Tardif from Alberta.
Senator Oh: Victor Oh from Ontario.
Senator Plett: Welcome here. My name's Don Plett, and I'm from Manitoba.
[Translation]
Senator Gagné: Raymonde Gagné from Manitoba.
Senator Pratte: André Pratte from Quebec.
Senator Dagenais: Jean Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Deputy Chair: Thank you, senators.
Today we have with us, from Keystone Agricultural Producers of Manitoba, Dan Mazier, President; and from Great Western Railway Ltd., Mr. Andrew Glastetter. Thank you for accepting our invitation. I'd like to invite the witnesses to make their presentations and, following that, we'll go questions from the senators.
Dan Mazier, President, Keystone Agricultural Producers of Manitoba: Good day. I'm Dan Mazier, President of Keystone Agricultural Producers of Manitoba. We are the largest farm policy group in Manitoba, representing the interests of all farm sectors on the overarching issues that affect our industry. This includes taxation, transportation, regulatory legislation and farm programming, just to name a few.
Our mandate is to foster profitability, sustainability and success in our industry, for current farmers and for the next farming generation.
KAP, as we're commonly known, is a member of the Canadian Federation of Agriculture, and I sit on the board of directors.
I am pleased to have this opportunity to speak to you today about agriculture in Manitoba and the need for international market access for our primary commodities.
Manitoba produces wheat and a variety of other crops like pulses, soybeans and canola. In fact, we produce 17 per cent of Canada's total canola crop and 20 per cent of Canadian soybean sales.
We are also one of the largest pork producers and exporters in Canada, and this includes both live animals and processed products. We also have robust beef, dairy, poultry and egg sectors.
Manitoba has over 19 million acres that produce food and that generate $6 billion in cash receipts annually, and that's just in primary production. Another $4 billion is generated from food processing, which is Manitoba's largest manufacturing sector.
Much of what we produce and process is exported to the U.S., Asia, Europe and South America. The new trade agreements we have seen recently will expand our opportunities in other countries, but developing new markets is of no use unless we can deliver there.
Western Canada relies heavily on rail transportation to get our goods to port, whether it's to Vancouver, Thunder Bay or Churchill. Speaking as a grains and oilseeds producer, I want to emphasize how important good rail service is for our sector.
However, it's no secret that, over the years, service we receive from the railways has not met our needs. Things came to a head in 2013-14, when a bumper crop, combined with slow railway service, led to many serious repercussions for farmers.
For example, port terminals were without rail service for 28 days during a three and a half month period that fall, and Canada lost sales because contract deadlines with international buyers could not be met. Not only that, it hurt our reputation as a reliable supplier.
Additionally, when there wasn't grain to load onto waiting ships or shipments were late, grain companies were charged a penalty by ship companies of between $12,000 and $18,000 per day per ship. That cost was passed right on to farmers.
Farmers lost money in the hundreds of millions — some estimates say billions — when the backlogged system led to an oversupply at local elevators. This drove local prices down compared to the price at port.
That had a significant impact on producers' ability to maintain cash flows, balance farm accounts and contribute to rural economic development.
In 2014, the Fair Rail for Grain Farmers Act was passed to address this crisis. Provisions of the act included extended interswitching rights, arbitration in shipper-rail contract disputes and the ability to set rail volume requirements if needed. However, these provisions were set to expire on August 1, 2016.
Our federal government has been working to extend these provisions for one year, and I want to thank this committee for its part in moving this forward. The Senate, as you know, voted to adopt the extension resolution last week. Yesterday, the House passed the motion. This extension will mean Western Canadian farmers can rest assured, knowing they'll be protected for the coming shipping season.
Now we must work to enshrine these key elements into the Canada Transportation Act because they are extremely important in maintaining an efficient transportation system.
The interswitching provision allows one railway to move the grain of another railway's customer up to 160 kilometres, instead of the traditional 30. This ensures shippers with only one choice of railway have fair and reasonable access to a rail system at a regulated rate.
The provision for volume requirements, used only when necessary, requires railways to move a government- determined amount of grain in a specified time period. Otherwise, the railways will face fines.
This ensures the grain transportation system will not face the massive backlogs and delays to port we saw several years ago.
Incorporating these measures into the Canada Transportation Act will protect shippers and farmers and help us to meet our contract obligations in the global marketplace and ensure that we can capitalize on new trade agreements.
Andrew Glastetter, General Manager, Great Western Railway Ltd.: Good morning, honourable senators. Thank you for inviting me to appear today to speak with regard to your study. My presentation will include a description of our organization, will then focus on some of the components of Bill C-30 and will also touch upon the CTA review as it relates to market access.
The Great Western Railway, or GWR, is locally owned and operated. It is the largest of Saskatchewan's 14 short- line railways and serves communities over a 440 mile stretch of track in southwestern Saskatchewan. The GWR is proud to serve the most producer car loading sidings of any short-line railway in Canada. In our last fiscal year ending in October, we shipped just over 5,000 car loads of grain for export. CP Rail is our Class I carrier that we interchange with at Assiniboia, Saskatchewan.
Although I understand that the one-year extension has already been voted on regarding the Fair Rail for Grain Farmers Act, I would like to touch upon the impact to our operation for future consideration. In 2014, when the act was put in place, I certainly understood then, and continue to support now, that the intent, certainly for part of the bill, was to ensure the maximum movement of grain within the operating system at that time.
I must add that fair comment has been made by the Class I carriers with respect to a record crop year, compounded by an extreme winter in 2013. I can attest that these conditions would certainly have made the task much more difficult than many would think. The difference between an average, albeit usually tough, Canadian winter, and the extreme operating conditions we saw that year do make for an altogether different challenge from a rail operating perspective.
Still, by my experience, there were many things the Class I carriers could have done to ensure better flow and movement of Canadian grain to export. Since my arrival this past year at Great Western Railway, I've realized that while the act was well-intended and did have many positive results, it had detrimental effects to the Great Western Railway specifically, its producer car loading facilities and the growers we serve in our area.
The focus on mandating one overall weekly volume requirement promoted the Class I carriers to further prioritize the use of their main line operations and locations closest to port. To a degree, that made the issue worse for many short lines and farmers in Saskatchewan. For example, while the backlog of traffic was building across the whole system, at one point after the measures of the act were imposed most of the seven major inland grain terminals that form much of our railway's competition were seeing a two- to four-week backlog, where many of our local customers were 22 weeks behind.
I can say that there were measures we could have taken at the Great Western Railway to have been better managed on our end as well, for example, by promoting a tighter focus on ensuring accurate car orders in the system. This would have helped the accuracy of the reporting at the time.
The imbalance in car supply resulted in much traffic from our growing area being trucked to main line facilities or across the border to United States destinations. The loss of local rail traffic was substantial and it is still difficult to recover from as it's always more difficult to get a customer back once lost.
The increased trucking from the local area has taken a toll on our local road system, which has led to increased tax dollars being spent on highway infrastructure. We have had many examples in our part of the province where we have seen a shift of traffic from local rail now moving by truck to main line or U.S. destinations, where the rapid rate of road deterioration is extreme.
This also has a negative impact on our environment. Shipping freight by rail versus truck can reduce the impact on our environment by 75 per cent, due to our ability to haul more tonnage per mile per litre of fuel.
It's important to note that over the past couple of years we have worked very hard locally, and progressed on many fronts at GWR in looking at our own efficiencies and ensuring that we are doing our part to be a more effective partner in the shipping process. This has served to strengthen an already strong working relationship with CP, and I am confident that we are in a better position going forward when it comes to car supply. If the focus will return again to mandating minimum volumes without condition, I fear we could see more traffic loss from our line.
I would rather encourage a form of regulating minimum volumes in only the most extreme of cases, but there should be an all-encompassing application that would see a fair allocation across all corridors and rail lines, including the short lines in small-town Saskatchewan.
On the subject of the Canadian Transportation Agency review, the recommendation to ultimately remove the maximum revenue entitlement could have a negative impact on effective and fair market access for grain. While I would not normally support regulation in this area in most commercial situations, I do see the vast majority of our extensive rail network in Canada as having a sort of dual monopoly, with most customers being captive. The ability to freely dictate rates in such a system could be detrimental to many farmers and small- to mid-size shippers, which make up much of the landscape of rural Saskatchewan.
The CTA review proposed a modernization of the Maximum Revenue Entitlement program, leading up to full removal within seven years. I would rather support a thorough review resulting in a modernization or overhaul of the MRE, but without the proposed full sunset of the concept.
A further note regarding rates is that we currently have to review the shipping rate structure over recent years. It has recently been brought to our attention by shippers that rates have shifted in a manner that may be more prohibitive to shipping off of our line when compared to rate changes from other origins. I will have to work closely with CP to better understand what has changed, if anything, in their approach to pricing shipping rates from our origin stations to ensure fairness across the board.
The last area I wish to speak on with respect to market access for grain deals literally with physical access itself. One of the most common concerns I hear from my customers is a lack of access at port. To put this into context, it's important to understand that short lines had been created when the large grain companies closed their facilities and moved their operations to centrally located facilities on the main rail lines. The rail companies sold the track to small independent rail operators such as the GWR, and therefore our customers are normally grain companies and buyers who do not have port terminal facilities of their own. New prospective international buyers of grain that have become interested in buying grain from our growers in our local area are very concerned about the lack of port access.
With respect to two of the main ports, they are virtually shut out at Vancouver and very limited at Thunder Bay. In our case at the Great Western Railway, much of our quality durum crop has traditionally moved south by rail into the U.S. market. Of course, with the U.S. having such a strong crop of their own this past year, compounded by the negative shipping cost impact of the Canadian dollar, we have seen this market all but disappear in this current fiscal year.
Having access to port facilities is critical to ensure adequate access to international markets for our grain. We have recently received a very positive approach from CP to support our marketing efforts and work with us on being able to provide unit train incentive pricing, or rebates to shippers, should they be able to target the unit train volumes off our line, unit trains being trains of 100 cars or more, targeted to one destination.
While the logistics to do this from a short line point of view, without the major high throughput terminals, will prove to be challenging, it could be a very significant step toward improving local shipping opportunities for our growers.
One of the first questions, however, is: What do we have for port access once we determine that we can move unit trains from our short line? With most port assets owned by the big players in Canadian grain, we are very limited as to who, if anyone, will take these unit trains at port.
To wrap up, world grain markets are very competitive and Canadian grain must compete with other nations that grow grain much closer to tidewater. Short lines such as the GWR can play a major part in the supply chain by providing less trucking and, therefore, lower cost from farm gate to delivery point and by providing more efficient, lower-cost rail operations, all the while providing improved environmental impact and more local jobs.
But in order to survive, we need access to adequate car supply, competitive long haul rates and cost-efficient access to port facilities. Thank you.
The Deputy Chair: Thank you, gentlemen, for your presentations. We'll now go to questions from senators, and we will start with Senator Plett.
Senator Plett: Thank you. I monopolized a good part of the previous panel, so I will be brief this time to allow my colleagues an opportunity.
Gentlemen, I was the sponsor in the Senate on Bill C-30 and was proud to have been that. I also seconded the motion to extend this for another year, a week or two ago when the Leader of the Government in the Senate, Senator Harder, introduced that motion. I'm glad, of course, that the government has now implemented that.
This is more of a comment, but I would like both of you to respond.
One of the main reasons for that bill was that the big guys were not moving the grain. It was not to get after short- line rails; it was to get the big guys to start moving grain instead of oil, and we had nothing but pushback from them. Even at this committee they pushed back on that, and it was very evident. They cited a hundred different reasons, such as having had a harsh winter. We have cold winters in Canada every year, especially in Western Canada, where I'm from. That was the biggest pushback, and I think we made the right decision then and I think the government is making the right decision now.
That's really in the way of a comment. I wouldn't mind if you would like to respond, but I'm happy the government did what they did then and with what they're doing now. I believe it helps one of the main industries in the country, certainly in Western Canada, and that is the farmers. I think that is where we need to make sure that the big railway conglomerates do not take over. It's not the short lines, certainly. I agree that you lost business, but you lost business because the railways weren't moving the grain, and that was the net result of it. If you have a comment, please share it. Thank you very much. That's my last question.
Mr. Glastetter: Certainly from the Great Western Railroad point of view, as I noted in my presentation, I supported and understood the intent of it. It was a crisis situation and it needed to be dealt with quickly. My comments for suggestions are to improve it. Should we take a look at or revisit it in the future, we have a one-year extension in place. Like anything else, it's put in place to make improvements as we move forward. Our opinion would be that we would like to see conditions that would also give some protection to the short lines and the smaller shippers on the line. I understand it being put in place and for good reason. It moved a lot of grain; there's no doubt about that. Like anything else, we can make improvements; and my suggestions are to that effect.
Mr. Mazier: What really shocked me was the amount of potential it removed for economic activity in Canada. There are estimates that up to $7 billion have been removed from Canada's economic activity because our grain could not get to market.
The market was calling for it and the port prices were through the roof; yet our prices at the farm gate were zero. There was zero bid at a certain time on the Prairies. That's a cause for concern. The farmers did everything right. They produced a record crop, and mother nature cooperated. We were ready to capitalize on that. That's building resiliency and that's the way it should work; but the railways didn't get the memo.
We've got to fix this problem. What drives me nuts about this whole situation is that under the contract they've agreed that they're going to haul some grain; and they're not completing that contract. It's handcuffing the Western Grain Elevator Association. Those guys have markets but no one can deal with the railways.
We need some sort of regulation, and thank you very much for bringing in that act as it brought a lot of attention to the problem, if nothing else. If that hadn't been done, this problem would have continued unnoticed. Now we've got it on everybody's radar, not only at Agriculture but also at Transport; and International Trade gets it. I think we need this multi-department approach moving forward to make sure it doesn't happen again.
I keep on pushing, and I know it's going to be an uphill battle but it's up to all of us. Agriculture has a lot of potential if we're allowed to actually be part of the game and are treated fairly.
[Translation]
Senator Dagenais: I would like to come back to the issue of rail transportation. Last year, the president of CP testified before our committee. CP claims to be the owner of trains, CN claims to be the owner of rails, and you have the cars. I understand that you have to negotiate with all those people, but do you have to hold intensive negotiations with railway companies? Are they willing to deliver on time? We were told that grain was rotting in silos, or that those companies preferred transporting oil, as it is more profitable. Are they indifferent to your objectives? There seems to be a problem between car owners and railway owners. That seems to be a major problem for grain transportation.
[English]
Mr. Glastetter: Certainly at Great Western Railroad we negotiate with CP, which is our Class I carrier on certain agreements that we have in place for haulage having to do with levels of service, operating conditions and rail rates.
To be honest, I think we may be a little bit of a different story than many other short lines. We have a strong working relationship with CP. We did suffer greatly for car supply and car allocation at the time. I was not with Great Western Railroad at the time, but I've certainly brushed up on the history. There were very many issues with service, trying to get communication in place as to when trains would arrive and cars would be available for our shippers. The length of time it took to get cars in place was extreme. It was very detrimental to our railway and to the farmers; there's no doubt about that. From my understanding, CP certainly could have done many things to improve the situation, but they just didn't take place.
As I alluded to in my presentation, there are some things we could do better to help facilitate that a little, like making sure we're being more efficient and that we understand we need to be available 24-7 to service our customers and to accept traffic from CP. We need to be more flexible and communicate better with our people on car orders to ensure that they're accurate.
While there were things we could do, we've done a lot of work on that in the last year. It has helped our relationship with CP, making sure they understand that we're committed to moving their assets quickly and handling them with the high level of respect they need.
Currently, I find them open for us to work with. In July and August last year, when we were cleaning up the previous crops, volumes were busy and traffic was high, and they were meeting 100 per cent of our car allocation needs at a time when a lot of their system was receiving only about 80 per cent to 85 per cent of car allocation. We may be an exception, but we have a very strong working relationship and it's going well. I see the future as strong there.
I haven't seen any issues where they were perhaps favouring oil. At the time in 2013-14, for the Class Is oil represented only 2 per cent of their shipping. They didn't feel it had an impact on overall shipping. In my opinion, the oil was a fairly new and growing business for them. I saw them making changes in their networks to facilitate future growth. Often when you make those changes, it has a vast impact on your hub and rail operations; and it did make things difficult. It certainly had an impact, in my opinion.
[Translation]
Senator Dagenais: I heard you talk about CP. Does that mean CN is being completely left out?
[English]
Mr. Glastetter: Certainly, I have some experience with CN. I like to speak only on my experience as I don't think it's fair to speak where I don't have full knowledge. I admit that in 2013-14 I was actually with another short-line company where I oversaw three different railway operations in Canada. We interchanged and worked closely with CN on two of those locations. We saw challenges from that end.
I was responsible for watching oversea rail shipments coming on our line that were destined for the Port of Churchill. We saw extreme loss of allocation of carloads during this period; and our expectation on what we were supposed to receive for service was not met consistently.
A railway I was overseeing in Saskatchewan at the time had issues with access to the yard in Saskatoon due to congestion. A lot of that congestion had to do with oil traffic that was moving through there. In that case, there was a change going on in CN's network, and they were rerouting a lot of stuff through Saskatoon that did not traditionally go through there. It definitely added to the congestion.
I have seen experience from both sides. The issues are very similar with both Class I railways.
Mr. Mazier: In 2013-14, we went to zero service as they weren't showing up. When cars are ordered through the elevators, they are put on a schedule. All of a sudden there were pulse growers. A coalition got together and started to monitor all the elevator points. The grain monitoring program started looking at how often these cars were ordered and then how often they showed up and actually completed those orders.
For two years, not only 2013-14 but also 2014-15, they were operating at around 30 per cent to 50 per cent at the time. They were showing up and delivering those cars or dumping them off at the time they said they would. That went on for two years. Now, all of a sudden this year, we're sitting at 80 per cent to 90 per cent. Last week we were at 100 per cent; so something is going on. Oh, and by the way, the oil industry just happened to crash. All that time they were in denial.
The Deputy Chair: It had nothing to do with this.
Mr. Mazier: How do we fix that? The key is to understanding how the railways work and getting that data. We were looking at the crop logistics working group that the minister appointed. I was on the committee that the grain commission chaired. I couldn't get over the understanding of the whole railway system and how it worked. The whole industry understands it except the railways.
The railways basically have the control. They don't want gridlock, so they want control of it. I understand that but, on the other hand, they have to work with these businesses, and they're not. There are no repercussions to the railways at all. That is a key problem.
[Translation]
Senator Dagenais: You say that they control the network. Does that make them arrogant? They have a monopoly, so they are the decision-makers. I met them once, and I felt that their attitude indicated that they had a monopoly and that they would decide whether they would transport grain or not, as they see fit. That was the impression I got.
[English]
Mr. Mazier: That's our problem in agriculture. We don't produce a widget, something that we can just turn off, like potash, fertilizer or a car. We produce based on nature's cycles.
We are different in agriculture, and that's why the grain-handling transportation system is all being analyzed right now. It needs to be handled differently. If we're going to capitalize on these trade agreements, we need the railways at the table to talk to them.
Having said that, they have come a long way. CN has created a customer service centre in Winnipeg. Kate Fenske is the new contact. She's in Winnipeg, and we've met with her. She is very open.
Their main focus right now is safety. They're talking to all the RMs and to the cities. I understand that completely. It should take top priority. Meanwhile, service should be coming in there.
From the agricultural point of view, when we're talking to the customer service rep we can talk about service as well.
The Deputy Chair: Talking railroads and service. Those are words we've not seen together very often.
Senator Tardif: Bill C-30 changed the interswitching track, I guess you would call it, from 30 kilometres to 160 kilometres. Has that improved your capacity to move grain and your ability to be more competitive on the market?
Mr. Glastetter: In the case of Great Western Railway, it's not something that our customers or shippers would have much access to in the case of interswitching, due to the fact that they are on a short line currently. If they're looking for a level of service from a different supplier, we're going to interchange with CP no matter what. So if they are looking to interchange with CN, they still have to go through CP to get to CN's line.
The availability for customers on our line is not really there, so we don't see it in practice in our case. I do understand it; it's been used to some application, and I understand that some areas have taken advantage of it and are quite happy with it. I know there's also the notion that, even if it's not being used to its fullest extent, perhaps it being in place adds to the competitive nature, at least.
I can't speak to exact experience. We don't have anyone using it right now.
Mr. Mazier: It's helped out quite a bit in Manitoba as a tool to use to negotiate with the railways, if nothing else. Up to Emerson and all the way up to Winnipeg, it's helped out quite a bit.
I'm from Brandon, Manitoba, so the western part of the province, and I haven't heard too much coming up. They can come technically all the way up to Brandon, but I haven't heard too much about the benefit.
The elevators are generally saying that when they go to ship grain the rates are falling in those corridors where they can take advantage. That's a good thing, in general. Instilling that competition instead of "here we can do what we want.''
Senator Tardif: Mr. Glastetter, in your presentation to us you indicated that you would like to be able to:
. . . provide unit train incentive pricing or rebates to shippers should they be able to target unit train volumes off our line. While the logistics to do this from a short line without major high throughput terminals will prove to be challenging, it may be a very significant step toward improving local shipping opportunities.
Could you explain that to me in everyday language?
Mr. Glastetter: The way the rate structures work within the rail industry, if you're shipping cars at what they call single-car rates — one car, three cars, ten cars — usually anything less than twenty-five cars — you're paying a higher premium rate.
If you have the ability to ship what they call a ''unit train,'' which is going to be a single full train — typically, these days, more than 100 cars in a train, likely with all the same commodity and all going to the same location like an express train, it's not going to have to stop and be switched out at other destinations; it's straight to port and straight to unload — there are incentives.
There are rebates that the Class Is have traditionally offered for that type of service. That's why you see, up and down all the main lines, all the large cement main terminals that are able to load a 100-car or 120-car train in a 24-hour period.
From an efficiency point of view, it's really an extreme benefit for the Class I railways.
That opportunity to get that type of incentive shipping off short lines has usually been difficult. It's rare that you will see a large terminal like that on a short line. The short lines really came about because most of the grain was being moved from the short-line areas up to these main-line terminals.
We have smaller facilities that could load perhaps 25 cars a day at a time, or 22 cars at a time — some are reaching towards 50. The opportunity has been presented to us by CP that if we can find ways to accumulate unit trains off of our line at interchange — so it could be across various different loading facilities on our line — we could return back to CP a 100-car train to the same destination.
With a single shipper and a single buyer looking after the freight, they will offer the same incentives to us. That really helps close the gap quite a bit between the rate disparity between the main-line shippers and shipping off of our line to allow farmers to be able to deliver their product a lot closer to the farm, to get it to the railhead but still realize better shipping rates.
The problem with that right now for us is that most larger grain terminals on the main line that have traditionally used this unit train incentive own all of the port facilities where these trains are going to arrive at and get loaded into vessels to go overseas. Now we're going to get the opportunity to ship unit trains — it's very big plus from CP to us — much appreciated — but now we need to work on logistics on finding locations at port that are willing to accept trains from independent shippers rather than from the large Canadian grain companies.
Senator Tardif: Quickly, do you have the car capacity to put together a unit train?
Mr. Glastetter: Yes, certainly. We often handle between 130 and 150 cars a week when things are busy on our rail line, with much more capacity left over. It's just that those 130- or 150-car trains that we're handling back and forth to CP now, 20 cars may be going to Thunder Bay, 20 to Vancouver, 50 to the United States — they're going all over the place. Therefore, the shippers are paying the single-car rates for their products.
Senator Tardif: Thank you for that explanation.
Mr. Mazier: I guess there is an issue of trying to figure out where these interswitching points are, too. The elevator association has asked. We've asked. We can't find out where they are. No one will give us that information.
We're also hearing that they're starting to take out some interswitching points — or reduce capacity, so you can't put these 100 cars there; you can only put 50 cars there. The railways, as we speak, are starting to reduce those areas where we can actually interswitch.
Senator Tardif: These are the Class I carriers?
Mr. Mazier: The Class I carriers. That is going on, as well as they say, "Sure, we've increased interswitching capacity,'' but then they're just going to take out the points where you can actually do it.
The Deputy Chair: Before I start the second round, I want to do my regular advertising here.
You keep shipping things west. When you go to Vancouver, where there are constant labour disruptions, I would like to mention the Port of Halifax that hasn't had a labour stoppage since 1976. It's also a day closer sail to India, Southern China and through the Suez than it is from Vancouver, so you should think about that.
In my other life, I'm also on the Transportation and Communications Committee, and Senator Plett was on that committee for a number of years, as well. We've heard so many times about empty container cars going west, through rural Saskatchewan, with farmers standing by the railroads ready to ship their product and empty container cars going west, not stopping. The railways say, "We don't know where all of our empty cars are.''
If the empty cars had money in them, they'd know where they were pretty fast. There is money in it that they're missing out on, and we're not delivering products on time or in the good condition they should be in.
Are you seeing that problem, the fact that there are empty cars going west to the Port of Vancouver? Other than last week, you complained about not being able to get the cars you need.
Mr. Mazier: There are grain hopper cars, and then there are container cars.
The Deputy Chair: Not necessarily grain. I appreciate the difference, but there are a lot of cars.
Mr. Mazier: If we had processed goods, specialty products would go to containers without a doubt.
There are adaptations that we can do to the rail system, to the railcars themselves, to adapt to that intermodal type of situation.
In Manitoba, though, we have only one place that we can actually load intermodal containers onto a train, and that's in Winnipeg. Even though we have to go to Regina, three hours, or Winnipeg, two hours, to ship from Brandon, Manitoba, they don't have, again, those collection facilities for those.
That brings up another interesting point. Our railcar fleet is actually set to expire by 2022. The Alberta fleet is going to expire first. We have to make a decision on what we're going to do with this fleet by 2019. It takes two years to place an order, and there's a backlog of about two years, so 2019 is the date by which we need to figure out what we're doing in the future with our railcar fleet.
The Deputy Chair: Who owns the fleet?
Mr. Mazier: There are six different fleets. It is everything from the Alberta government right through to the elevators. I can't say; I don't know if CN and CP own the railcar fleet.
Mr. Glastetter: Yes, they own a large portion of the railcar fleet, and the government owns some.
Mr. Mazier: That is probably our biggest challenge moving forward. If we were talking about the future of the CTA review and the MRE and all of those kinds of discussions, that's one to watch.
It's a sleeping giant that is going to catch us if we don't start reacting to it.
Senator Beyak: I just wanted to follow-up on Senator Tardif's question. Are you satisfied that the people you are talking to about the single units are listening and that they understand the concern? Because you both seem to be in agreement that it's a problem.
Mr. Glastetter: Yes. CP is certainly in favour of us on moving the unit trains off of our line. That's why they've come forward with it. It's actually a big change in direction for them to make this available to us.
The next people we need to talk to have to do with the actual port access itself. There are some out there; don't get me wrong, but we have a fear about the couple that are available, perhaps through Thunder Bay or one that's often used through Quebec City even. We think that there are things going on in the industry that could give reason for us to eventually get shut out at those locations as well.
I'd say the people that we are dealing with are certainly hearing us on it, but the current state is that there's very limited access.
Senator Plett: There's a saying that the proof is in the pudding, and Mr. Mazier has been quite complimentary to Bill C-30 and the continuation of that. Mr. Glastetter, although certainly not condemning it, is not quite as supportive.
My comment and question is this: You were quite explicit that you have lost business to trucks going south, and they are beating up the roads in Saskatchewan and in Manitoba. Even with that — and now you're having a problem getting the business back — you are not entirely supportive of the act that you need to haul a certain amount of grain.
Fair enough, the rail company said that 2 per cent of their business is oil, and maybe it is. I don't know, but certainly oil is a bigger commodity for them — and maybe it isn't — than grain is.
I'm not sure why you would be opposed to what clearly has worked and clearly is helping the farmers. They are now saying — Mr. Mazier has been quite clear — that the grain is moving. This has been a successful operation, and I think the farmers are shouting praises of both governments at least for continuing this.
Why would you not want that? Maybe you can get that business back from the trucks if you have to haul? If you don't have to, the trucks will start driving again.
Mr. Glastetter: Certainly. Just to reiterate some of what I've mentioned. I certainly don't condemn it. I'm not against the bill and I think, like anything else, something has been put forward, is in place and has had a fair bit of success.
To say it's altogether successful, though, I think falls short. That's just to say that I think there's room for improvement, senator.
Senator Plett: No doubt.
Mr. Glastetter: Like anything else, we put it in place, we test it through time and we need to revert back to what worked with it, what worked in this case. A lot of grain ended up getting moved. That's great. I certainly support that, and I'm behind it all the way.
What didn't work, though, is this aspect of it. In preparation for this meeting I did a fair bit of research, and I was looking at the video of discussions and the voting sessions when that bill was being put in place in 2014. It was reiterated over and over again that a large part of reason for putting that act in place was they were looking for a solution that was fair for everyone. That term came up several times.
I would be remiss to sit here today and say, yes, it's great on all accounts. It's not, and it's just a reality that it was great on many accounts. I think that's great, and I think it's a feather in the cap of the Senate and everyone who voted it through. It's a good measure, but hopefully the Senate, going forward, is open to the fact that it may not yet be a perfect document.
Senator Plett: I agree.
Mr. Glastetter: In that case, it was not fair, in hindsight, to smaller shippers, small Saskatchewan farmers who had to pay a lot more money to get their product to market because they had to truck it. They had to beat up our roads. The taxpayers have had to pay more money for the roads. To get this to market, it cost them a lot more money.
What I'm saying is that it can be improved, and we should take a look at that.
Senator Plett: What is the main commodity that GWR moves?
Mr. Glastetter: Currently, grain is the main commodity, and it will be our core commodity going forward. That is the reason our shareholders are a little over 300 local farmers who grow grain in our area.
Senator Plett: They must be happy.
Mr. Glastetter: I would say a lot of them are quite concerned with respect to some of the changes that took place with that act, in that their cost of shipping increased quite a bit. They were paying to truck their product to the main line during the time in 2013-14.
Right now they are very happy because, let's face it, the market is very soft this year, not just for crude oil. It's very soft for grain as well. Regardless of what happened with crude, grain supply would be very good for car supply right now.
I think the farmers would like to see better access from their local area to be able to use the local rail system.
Mr. Mazier: In our policy we support the corridor, the balancing of the corridors and specifics, so that short lines and small shippers don't get side-swiped on that. A balance has to be brought back into the new act or into the act eventually.
We are supportive of it, but there is some hurt there. That is definitely recognized. We're hearing that from our shippers as well.
The Deputy Chair: Thank you, gentlemen, for your presentations, and it's good to see that the railroads have discovered that there's winter in Canada and that you have to prepare for that. It does amaze you that they fall back on that excuse sometimes.
Thank you, gentlemen, we appreciate it. If, when you're on your way home or when you do get home, you suddenly say, "I forgot to tell them this,'' don't hesitate to send us a note via the clerk, and the clerk will circulate that to all of us. I want to encourage you to do that so that we don't miss the opportunity of picking your brain a little further.
Mr. Mazier: How much longer is this committee going to sit on this particular study?
The Deputy Chair: We hope to finish in the fall.
Thank you, gentlemen. We stand adjourned.
(The committee adjourned.)