Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 2 -- Evidence
Ottawa, Thursday, May 2, 1996
The Standing Senate Committee on Agriculture and Forestry met this day, at 11:00 a.m., to consider its order of reference to study the present state and the future of agriculture in Canada, and to consider issues related to the sale of the hopper car fleet and its impact on agriculture.
Senator Leonard J. Gustafson (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, before we proceed with our order of reference, our first item of business will be to deal with the proposed budget of the committee. Senator Hays, have you had a chance to look this over?
Senator Hays: No, but I will be interested in the Clerk's exposition on this subject.
Mr. Blair Armitage, Clerk of the Committee: Committee members may or may not be aware that all committees have been asked to have a communications plan. In the absence of a single focus for this committee, I have put in a speculative amount of 10 days' worth of consulting fees at an average of $500 per day. This was based on research done by our branch in the intervening period between the two sessions.
In looking at past budgets for this committee, I see that participation in conferences is something that is done from time to time. I have allowed for participation at two conferences by two participants. Sometimes this committee has sent both members and staff to these conferences.
I have allocated an amount for working meals in case you have to do something over the course of a lunch time or dinner time.
There is a fact-finding trip to Winnipeg and a fact-finding trip to Washington; and there are some travel funds for participation at the conferences I just mentioned. There are some miscellaneous expenses as well.
One element on which I could use direction is the number of participants that I have chosen. I have put in six senators and three staff. If you want to change that, or alter it as we go along during the course of the fiscal year, you can do that on an ad hoc basis or do it now.
The Chairman: Are there any comments? Is it adequate?
Senator Hays: Have you covered periodicals? I see here 250. Is that adequate compared to other years?
Mr. Armitage: It seems to be the amount that this committee has been budgeting for.
Senator Hays: I do not see anything unusual, Mr. Chairman.
Mr. Armitage: One other item that I did not comment on was the issue of witness expenses. This is a new element for committees. They have to budget now for the expenses of witnesses. I have taken an arbitrary figure of 25 witnesses and an $800 average; that was calculated by our branch.
Senator Hays: On that, do you know what the past experience of the committee has been over the last few years? Is that estimate high or low?
Mr. Armitage: I would say it is probably high.
Senator Taylor: I want to draw senators' attention to something brought up last time. This is, after all, a committee on agriculture and forestry. In Western Canada, forestry is going through important changes, with the pulp and paper industry, and with the interfacing that will occur between the fibre industries of forestry and the fibre industries of agriculture. We are continuing our interest in wheat, and do not get me wrong, there are many more farm voters than there are forestry voters, but nevertheless there is a lot of money being turned over in forestry. I wonder if somehow we could start to recognize that. I don't know how. Perhaps the forestry people do not even know we exist.
The Chairman: That point has been raised at different times. There was the feeling that a shortfall existed in recognizing and dealing with that area for which the committee is responsible.
Is there more discussion on that as it relates to the budget?
Senator Taylor: I was thinking of a fact-finding trip for senators. Most members of this committee know about the Wheat Board. We are inundated with information. I do not think most members of the committee are familiar with forestry. Perhaps we should have a trip to the Peace River; one of the largest paper mills in the world is located at Athabasca; we could also see how the timber industry is working, and how the fibre and paper industry is working. That might be more valuable than taking a Wheat Board trip, not that I am trying to run down wheat. I am just saying the Wheat Board has been very effective in its lobbying over the last 50 years.
Senator Hays: They seem to be faltering a bit now.
The Chairman: Perhaps Senator Spivak has something to say on that.
Senator Hays: Senator Taylor will find a friend in Senator Spivak.
Senator Spivak: Yes, I think we should do that.
The Chairman: This could be included, could it not?
Mr. Armitage: Our general order of reference, which this budget is based upon, is the study of the present state and future of agriculture in Canada. Certainly, under the terms outlined by Senator Taylor, you could argue that the use of crops which produce a biomass suitable for pulp production would be an agricultural topic, and we could do a fact-finding mission within the topic, if I could be given some rudimentary parameters.
However, a more intensive study with a more detailed budget might require a more specific order of reference. If you could frame an order of reference for the committee that would give it more specific guidance and a more specific focus, I could do a separate budget for that.
Senator Spivak: It would have to mention forestry, though, because otherwise we would be stretching the term "agriculture". It is within our competence because we are a committee of forestry as well. Perhaps Senator Taylor could outline what he had in mind.
Senator Taylor: I was suggesting that we have a fact-finding trip for senators to visit Athabasca and Peace River where there are huge papers mills. Our forest management area is one and-a-half times the size of Switzerland, and forests are being managed all the way from the plantation to the production of fibre and paper and lumber.
Senator Spivak: Could we not just make a generic proposal and say that we are interested in the boreal forests in the prairie provinces and in the West? Why not say we want a fact-finding mission to study the recent huge expansion of the boreal-forest industry?
Mr. Armitage: That is not specifically covered by the order of reference that has been passed by the Senate. While the committee studies both agriculture and forestry, the order of reference adopted by the Senate a few weeks ago was a broad order of reference which I drafted for Senator Gustafson just to get the committee going so that we could hear the most immediate witnesses.
Senator Spivak: Do you need another order of reference?
The Chairman: Just to tidy this up quickly, would the committee be in agreement with the suggestion of Senators Spivak and Taylor that we ask the clerk to draft something to include it and then project the budget accordingly?
Senator Spivak: That is a good idea.
The Chairman: Is it agreed?
Hon. Senators: Agreed.
Senator Hays: Mr. Chairman, I know Senator Spivak will welcome Senator Taylor's interest in forestry issues, because she has been patiently waiting for him to come and give her this support. Perhaps a specific proposal could be made by senators who are interested in this subject rather than going back to the Senate for another reference to add forestry. We probably should have had it in there in the first place, but I did not think of it. I apologize. I guess my focus on agriculture was too great. Perhaps doing something specific is the proper way to go back to the Senate, rather than having it in the general reference.
I support the proposals that have been made, as I did in the steering committee, and I would seek support for them here. There is still more work to be done on the Canadian Wheat Board. We have a new farm bill in the United States, and I think the fact-finding mission there would be appropriate not only to update ourselves on what we looked at before but on some rather dramatic changes that have taken place in the United States.
We also have a very serious dispute with the Americans which involves the future of the supply-managed sector in Canada. It would be important for the committee to be informed on that subject so that we can make the best contribution possible.
The Chairman: Is it agreed that we will give our clerk the authority to move ahead in this direction and prepare something additional in the budget to cover it?
Senator Spivak: Part of the work has already been done, so it would not be much to pass it on to the clerk, at least if Senator Taylor would look at it.
Is there a problem with increasing this budget?
Mr. Armitage: Increasing this specific budget when not covered by the specific orders of reference that it is operating under would be a problem.
Senator Spivak: Is there a cut-off point at which the committee is not entitled to any more funds?
Mr. Armitage: No, there is no stated quota for that.
The Chairman: Is it agreed?
Hon. Senators: Agreed.
Mr. Armitage: This budget stands, and we will draft separate orders of reference.
The Chairman: We are prepared to hear witnesses now in regard to the hopper cars. This has been quite an area of discussion, at least in the prairies.
We are pleased to have with us this morning Mr. Howard Migie, Director General, Western Grain Transportation Review.
Please proceed, Mr. Migie.
Mr. Howard Migie, Director General, Western Grain Transportation Review, Agriculture and Agri-Food Canada: Mr. Chairman, I have a handout which is available to the committee. This is something the Minister of Transport has used as well in the past few days.
We should look at the hopper car issue in the broader context of the grain transportation reform. If I may go through this quickly, it will not take more than five or ten minutes.
On page 3 you will see some underlying objectives for the hopper car sale that relate to the government's objectives for a more efficient grain handling and transportation system, and a greater diversification, as well as an effort to decrease subsidization and transport in agriculture, in particular, and to have less government regulation. Those are some of the underlying themes.
In the 1995 budget, the government began that process with the ending of the WGTA subsidy and the repeal of the Western Grain Transportation Act. There were some other important provisions with maximum rates for a period of at least five years, and then there was the question of a review. There is a $1.6 billion pay-out and a $300 million adjustment fund.
We reviewed a number of branch lines this past year, and from Transport Canada's point of view there is no longer a senior grain transportation committee. What used to be the Grain Transportation Agency became an office in Transport Canada, and that itself will change this coming August.
In the 1996 budget, the government continued along the path of wanting to move toward a more efficient system by, in effect, saying the government would dispose of hopper cars and would take into account the impact on the industry. It is not simply a sale of an asset at the highest price; it is more complex than that. The government would reduce its role in the day-to-day operations. In the past, and really until today, the Government of Canada has been actively involved in the allocation of cars, and that role will be lessened and the industry will take on more responsibility.
So far, the government has said that it is open to bids from all interested parties and there will be an increase in freight rates of 75 cents a tonne starting August 1 of 1998. That will help cover the acquisition costs for these cars, because most of the traffic is in fact prairie grain that is covered under the maximum rates. That is not exclusively the case, though. Some cars are used to move commercial grain as well.
There are some other provisions. The legislation to implement the sale of the cars and the freight rate increase has just been tabled and is before the Finance Committee of the House of Commons. A financial advisor has been selected by Transport Canada to give advice to the government. We are developing a number of issues that are important for the terms and conditions of the sale right now.
The government has hired CIBC/Wood Gundy as a financial advisor for the sale. We will be consulting with the industry starting in late May and early June on terms and conditions, because this is not a simple sale of an asset. The government hopes to call for bids by the end of June.
One of the issues we will be dealing with is whether the cars should be sold all to one bidder or should be broken into smaller lots. Right now, there is a common fleet of cars. We have roughly 13,000 cars, but the fleet is perhaps 25,000 cars. That common fleet has proved to be useful and beneficial. We would not want to break up the fleet through this particular sale.
There is a question about how much these cars should be available for other uses. Right now, they are available on a priority basis for prairie grain for regulated traffic. They are also available for prairie grain for commercial use when it is sold to the States or when prairie grain is moved in Eastern Canada, but they also can be available, and sometimes are, for grain in other areas, and in future they could be available for other commodities.
Those kinds of issues need to be developed. We would like to put on paper how we would specify priority for prairie grain or the terms for the sale, but we want to do it in draft form with the advice of a financial advisor and with comments from the industry on those terms and conditions. We will then become somewhat more formal with an official call for bids, perhaps in late June, but people will know that these are the ground rules for bidding for the cars, and there should be a sale possibly by the end of the year.
At the moment, the list of potential buyers is all-inclusive. We have not excluded anyone. It is possible that during the consultations we will be advised that having 100 per cent of the cars going to one railway or one grain company might not be acceptable, but at the moment there are no limits. It could be foreign-owned at the moment, or it could be a producer railway. We are not precluding anything, but those are things that may be discussed.
At the moment, the process is developing terms and conditions, and there will be consultations. There will be a policy role developing those terms and conditions. At the end of the process, in late June at the call for bids, the intention is that it be a transparent, fair process. Everyone will know the ground rules and know that the decision will be a fair one, because there is a cost involved for people developing a bid.
I will stop there and try to answer questions as best I can, Mr. Chairman.
Senator Spivak: Is the Western Grain Transportation review finished? Is there a document?
Mr. Migie: The act itself has been repealed.
Senator Spivak: I know that.
Mr. Migie: To that extent, there is no legislation, but the issues are still being developed. If you think of the steps, the first is that the subsidy was eliminated. Next, the act was repealed in its entirety, but one section of the Canada Transportation Act includes grain, which has a regulated maximum rate. That maximum rate is in place and ongoing but there will be a review in 1999, and the government of the day can decide, without amending the act, either to continue with that maximum rate or to terminate it. That is what is in the bill.
Senator Hays: Mr. Chairman, as I remember, these cars came into existence because of the statutory rates and the reluctance of the railways to replace rolling stock that was wearing out. The experience with the cars has been very good in respect of their availability to move grain to markets.
Forgetting for a minute about the cars and their value and the fact that they are wearing out and have to be replaced, you made mention of Government of Canada structures with respect to car allocation, ensuring that these cars continue to be used to move grain and not, for instance, fertilizer in the U.S., or some other commodity. Could you say a bit more about how that will work? Will the owners of the cars -- who could be producers, railways, leasing companies, financial institutions, or even Senator Gustafson -- have the same power as the government had with respect to the car allocation? That is the thing that seems to me to be very difficult. I do not understand how that will work.
Mr. Migie: Currently, the government has legislative authority for car allocation. Most of it is in the Canada Grain Act. The Minister of Transport has been delegated that authority under the Canada Grain Act, which means that there is someone responsible in Transport Canada for most of the car allocation. There is a little bit that the Canadian Grain Commission does with respect to producer cars. So there is an administrative procedure, if you will, that allocates cars, and they have developed a process for a split between Wheat Board and non-Wheat Board, and then the Wheat Board can handle it from there on; then there is an administered system, which is not ineffective, whereby the government is an active player in the allocation of cars. Part of it is due to the ownership, but not necessarily so.
In all other industries, the government does not allocate rail cars. It is only in prairie grain. The government has proposed to the industry that it would back away and ask the industry to take that over, and the industry -- if I can use the term somewhat loosely in terms of grain companies, railways, and some producer representatives -- has developed a proposal for how they would take over the car allocation function.
The one decision the government made at the time of the budget was that there needed to be some producer representation on that body to deal with certain policy issues that were previously dealt with -- policy issues, such as how to decide on what the split is between Wheat Board grains and non-Wheat Board grains; or on allocation to various ports, which is a fairly sensitive issue; or on certain other procedures about whether individuals can bring in cars to add to the fleet for their own use or whether they have to be common. In other words, certain issues that were previously dealt with in an administrative fashion now need to be dealt with somehow. It could be by the railways and the shippers, as it is in most industries; but in the case of grain, the Wheat Board, the grain companies and the railways agreed to this type of industry-led body which will make those kinds of decisions.
In some ways, that is irrespective of ownership. One of the issues on terms and conditions for the sale -- since the federal government owns more than half the fleet, and therefore what we do with the sale could impact on that -- is that we will have to develop terms and conditions that may limit the value that anyone would pay for these cars, if they were an American leasing company, for example, because it might specify how those cars have to be used in relation to a car allocation policy group in which the owner plays no part.
That is what we have to spell out on paper. It will probably limit the value of the cars, which is one of the jobs of our financial advisor. His or her job is to give advice on how the value of the cars will be affected once we specify these limits and conditions.
Senator Hays: I am still not clear on what replaces what is in existence now. Will the government, on a legislative basis, give the owners of the car -- the railroads, this industry group -- the same power it had, or will they have less power? It seems to me the intention of Transport Canada is to get out of it and let someone else worry about it.
Mr. Migie: Legally, we do not need to amend the legislation. We do not have to use the power that is in the Canada Grain Act. Over the years, sometimes it has been used and other times it has not. If we withdraw our function, then the question will be who takes it over. If you have the railways, the grain companies, and the Wheat Board agreeing, along with a producer representative -- because we want a producer representative added -- and if those various groups are prepared to operate that way, then we do not feel that legislation is required.
Right now, the governments of Saskatchewan and Alberta contribute cars to a common fleet -- as do the Wheat Board, the federal government, and the railways. So far, everyone is prepared to continue doing that, which is where we will get into the terms and conditions of how many years we will specify that the new owner of the federal government cars will have to provide them to a common fleet. That might be an important issue to discuss with the industry.
Senator Hays: My observation is this: One could argue that the railroads, the producers and the pools have a harmonious and good relationship and would get along well and agree easily. Others might argue that they would not get along very well, and there is even some evidence of that today. Some producers want to go one way and others another way, and so on. Will there be some way to help them, if they are not getting along, or will the government just let it go?
Mr. Migie: There is a group that is developing the ground rules for this, the car allocation policy group, or CAPG as they call it. It will have to deal with disputes. Sometimes the two railways do not agree. It is not all that different from what we have had in the past, except at the end of the day there was a government body that had power. In every other industry, it somehow gets worked out; and the industry itself, the grain companies, the railways and Wheat Board, after spending several months together developing the proposals, felt confident that they could do a better job than if it was left to the government body to do. They want to take on that challenge. There has been a clear indication from government that producer representation is important, and the producers have gotten together and they are participating with, ultimately, one rep, because it has to be efficient, and we will give it a try.
The question might be: What happens if it proves that it just cannot function and it gets into trouble? We will have to see how the ground rules are developed and how disputes are resolved. It will not be easy for a grain company to come to the government and say, "We are not enough getting cars. We want more." That will not be an option anymore, but other mechanisms will be developed to deal with an aggrieved party, if I can put it that way.
The Chairman: What percentage of all transportation involves the movement of grain?
Mr. Migie: Nationally, it is in the order of 20 per cent to 25 per cent.
Senator Spivak: My question is generic in this sense: What is the objective here? In a sense, the objective is to let market forces take over in order for the government to get out of this business. I presume another objective is to have a more efficient transportation system. I cannot quite understand how the government will be involved here. From your explanation, I do not have a clear picture.
I just came out of another committee meeting at which the Transportation Act was being studied. It seems that the interests of the producer in the Transportation Act are not reflected in the legislation, for example, in terms of branch line abandonment. There did not seem to be a bridge to allow those branch lines to continue.
My question is this: Can you explain how this particular move on the part of the government will assist our own industrial strategy, and by that I mean agriculture strategy in Western Canada?
Mr. Migie: We are not moving to a completely unregulated system. However, we are moving in the direction of less regulation. The United States model is not one that many in the agriculture industry like. At the moment, they do not think it has worked better than our system in terms of a number of measures.
However, given the objectives of the industry, which involve a significant amount of export growth and value-added growth, there is the view that we can do a lot better than what we have been doing in the last several years. With the subsidization being virtually eliminated, the producers have a much stronger interest in reducing costs, as well as ensuring that we do perform well for our customers in terms of timeliness as much as anything else.
There have been a number of concerns raised. For example, sometimes we get the wrong grain at the port at the time the ship is there. We have not become as good as we can become.
You should think of the sale of the cars in the context of ending the subsidies and putting in more freedom on the rate side below the maximum, which has not resulted so far in many reductions. However, you can see that the grain companies have consolidated elevators in a substantial way. Many people are quite prepared to have grain trucked into higher-throughput elevators.
Part of what the Wheat Board has agreed to do in the coming year is to move toward a system of zones rather than controlling train runs as strictly as it does. That would give grain companies more flexibility to decide on, perhaps, getting a train that can handle more cars at a given spot and using their high-throughput elevators more.
There is a view that we can increase the efficiency quite a bit through a number of steps, which involve the government's stepping back somewhat and giving the grain companies, the railways, the producers, along with the Wheat Board, more freedom to use the rail cars and, perhaps, emphasizing high-throughput elevators more. In this way there can be greater productivity.
In the bill that is before the House of Commons Finance Committee there is a provision with respect to sharing the productivity gains better than is done in the current legislation or what you saw with respect to Bill C-14.
Senator Spivak: That measure seems to be tilted toward the railways.
Are high-throughput elevators really of benefit to producers? Some producers will have to truck their product a long way. Perhaps they could leave their grain in smaller elevators and have branch lines. That is apparently working well in Nova Scotia. However, there is nothing in this legislation to stimulate that. In fact, it is the other way around. The way it is written in the legislation encourages this consolidation so that the producer is way out there and has to truck. Trucking is a subsidized cost. We subsidize the roads and the trucking industry.
Mr. Migie: Just a little over 500 miles were looked at last year, which, as a result of Bill C-14, would be abandoned rather than going to shortlines. It was the view of all who looked at them that those lines have so little traffic on them now that it really would not make sense to have them become shortlines.
One of the premises of Bill C-14 is that there will be a new branch-line procedure to encourage shortlines. With the exception of those 500 miles, the process is to emphasize sale before abandonment, if there is a buyer prepared to take lines over. There are some built-in safeguards.
You can see the trend has been to go to some elevator consolidation. The companies are still expecting it. In some cases, it turns out to be more efficient to pay for the grain to be trucked in and have a higher-throughput elevator. However, that is not always the case.
Senator Spivak: If you are going to market, why are you subsidizing that? That is subsidized.
Mr. Migie: In what way?
Senator Spivak: The roads are subsidized.
Senator Landry: In your mind, what is best for the producer?
Mr. Migie: What we are emphasizing in the policy is that we want to have a system which can allow for increased exports, meeting our customer needs in a timely way and at a price and at a total cost, including the cost of roads, if there are extra costs in that regard, which is either lower than it is today or lower than it would have been under the previous regime. In some cases, it means that rail will be abandoned, but not in all cases. In many cases, shortlines, if they are railway sponsored, which might mean a saving on labour costs alone, or other shortlines, may turn out to be the best way to go. The intention is that that option is still to be encouraged.
The Chairman: The shippers have a concern. I will use the example of the Weyburn grain terminal, which is a large terminal in Weyburn, Saskatchewan. Right next to it is the Saskatchewan Wheat Pool or the United Grain Growers who may be moving only a percentage of grain. Their concern is that they will get one rate to move grain out with 100 hopper cars, for instance, where a smaller shipper can only handle 20 cars, which will be at another rate. The whole matter of shippers' concerns arises in this area.
To that, add this question: Do you really believe that we will be able to move grain cheaper in the future because of the changes? The question farmers are asking is what it will cost them to move grain five years from now.
Senator Spivak: There is no competition, that is the point.
Mr. Migie: Keep the subsidies aside, because you will never recover the effect of the subsidy. In a way, it is an opportunity which has a cost attached to it. If you have the opportunity to use high-throughput facilities more effectively, and you have a better chance of improving car-cycle times, then there will be a cost that is less than it would be under our current regime. I am not saying it will decline, because there are cost increases, but there is a better chance of productivity gains.
We included in the legislation that is now before the Finance Committee a sharing of the productivity gains for the shipper. The bottom line is that when the subsidy has been removed, the pressure becomes greater. Thus far we have not seen much in the way of competition. The potential of U.S. competition becomes greater if our freight rates get much higher, especially in eastern movements. That is of concern to some, but it is potential competition.
There is an effort on the part of many producers to encourage more competition between the railways. They would have preferred the legislation to go even further in that direction.
Senator Taylor: My question is perhaps more generic, Mr. Migie. I notice you have open bids and interested parties, and all the way through you talk of selling.
I do not quite understand the macro-economic thinking behind that. Would it not be more sensible to transfer all the hopper cars to the producers for $1? Taxpayers have paid for them. Why add a cost to an export industry for a bunch of steel and junk just to get a short-term income for the government?
There would be a long-term income of increased jobs and export income. Does it make sense to go to all the trouble of rationalizing with the maritimes to try to get them on their own feet, while we go around here trying to get a big price out of a producer for a short-term gain? If we sell it to the farmers for a big price, then they must get that money back plus bank interest. If we sell it to the railroads, they must recoup that money plus bank interest plus big profits -- that is why they are called railroads -- and perhaps a $1 million bonus for the president each year.
We are building in a huge cost to one of our main export industries for a bunch of steel that is rolling out there. Give it to the producers and benefit by the increased jobs and exports.
Have you done an economic model of that version to compare the potential return to Canadians versus the short-term, quick shot of selling the hopper cars?
Mr. Migie: In a way, we have been doing that by providing the cars at no cost to the railways for all these years. The ownership costs are not built into the freight rate. In some ways we have been doing that.
One of the considerations taken into account by the government was the fiscal one. The sale of the cars will very likely be at below-market value, which has been estimated at $400 million. The sale price will probably be higher than the scrap value of the cars, which some have estimated at $90 million.
It was a reality that, as part of the budget, there was a requirement for some revenue. The government, through the expected terms and conditions, will give some assurance that the cars will be used in an efficient and a fair manner to provide some benefits to the industry. That will probably reduce the value of the cars to the government. I do not know where it will fall in between.
Senator Taylor: It seems to me rather obvious that, if you sell cars to the producers, the cars will stay here. The producers would not suddenly start taking them out of the country, because they would have to replace them. The answer to your question of where the cars will stay is automatically solved by selling them only to producers. If you sell them to the railroads or a leasing organization, you may see the cars disappear.
I still come back to this: Has anyone run through an economic model on the potential return to the Canadian taxpayer and to Canada if we transfer the hopper cars to producers for a nominal fee, like $1? What would the return be in terms of jobs and the economy? We seem to be concentrating on the value of the steel, which I think is a short-term view.
Perhaps that is not your job. Perhaps that should be done in Mr. Martin's department. Someone should be running an economic model. Surely that was done in the maritimes to assess the loads against producers of timber and fish, et cetera, which could reduce the tax load. This creates a tax load when you pay for the hoppers. It is the same as if you went out and grabbed them.
Have you the authority to run that kind of model?
Mr. Migie: On the question about the cars disappearing, there will probably be some terms which limit the ability of any new owner to immediately sell the cars in the United States or to take them to the United States and obtain profit that way. That is one of the things we will assess in late May.
On the question of economic impact, we know what will happen if we continue in the way we are going. We have made projections of taking away the subsidy. That had a much bigger impact on producers, because it would mean taking away 15 times the impact of car values.
The government chose to limit the freight rate increase to 75 cents per tonne. You can compare that to the price. You are into a fraction of a per cent on price. It gets hard to measure impact when the price is going up in the marketplace by such great amounts. However, it is significant, and, rather than leave it open-ended at $2 or $1.50 per tonne, the government chose to put a maximum of $0.75 per tonne. That is the limit of increase in the freight rate as long as it is regulated. That will likely have some impact on what we will get for the cars.
You must take the 75 cents and assess the impact of not having that limit. If we sold them for $1, it would presumably be a zero-rate increase. The difference is trying to compare the impact of 75 cents per tonne to the lower price of grain that you would otherwise have.
That assessment then gets swamped by the recent changes we have seen.
Senator Anderson: My question has been partly answered. I think you said that the federal government owns more than half of these 13,000 hopper cars. Who owns the rest of them?
Mr. Migie: The federal government owns almost 13,000 cars. The Wheat Board owns 2,000 cars; they operate 2,000 cars which are leased. The government of Saskatchewan has 1,000 cars. The government of Alberta has 1,000 cars. The railways provide the rest, which can vary from 5,000 to 10,000 cars depending on demand.
The federal government fleet is a very large portion of that base hopper-car fleet to move prairie grain.
Senator Anderson: It is the 13,000 that you are talking about cutting?
Mr. Migie: Yes. The federal government owns all of those, just a little under 13,000.
The Chairman: If one were to project a farmer coalition taking over the cars, who would regulate the Saskatchewan and Alberta cars? Would they be regulated by the provinces? What would happen?
Mr. Migie: There is really no regulation involved in any of this. It would be more of the terms and conditions under which the federal government's cars are sold.
The two provinces so far have been voluntarily providing their cars to the common fleet. They have not indicated what they will do, but, if the producer group does buy the cars, Saskatchewan would be interested in selling them to the producer group, whereas they might not be interested in selling them to the railways.
Both provinces are watching to see the terms of the sale, keeping their options open and saving their decisions for later.
Senator Taylor: The sulphur industry owns their own cars. Have you done any comparison in that area, Mr. Migie?
Mr. Migie: Are you asking whether the grain companies or shippers would be interested in having a greater ownership in cars compared to the railway? Is that what you meant?
Senator Taylor: Sulphur producers jointly own a company which in turn owns the cars. I am wondering if you have done any assessment. We try to run the car business at a zero cost.
Mr. Migie: Transport Canada has looked at that model. It may be one to which the grain industry will eventually move. At the moment, in addition to the shippers having something, the grain industry seems to want a joint effort with the railways, the Wheat Board and the grain companies themselves as well as all the producer representatives. Eventually, the situation there might become similar to the situation with sulphur.
The Chairman: Thank you, Mr. Migie, for appearing this morning.
I would call to the table now the Farmers' Railcar Coalition. We welcome Mr. Sinclair Harrison, who lives in the constituency where I served for 14 years. He is president of SARM for Saskatchewan and also, I understand, chairman of the Farmers' Coalition. With him are Mr. Art Macklin from Grand Prairie, Alberta, and Mr. Les Jacobsen from Manitoba.
Mr. Sinclair Harrison, Farmers' Railcar Coalition: We are also joined by Terry Boehm from Saskatchewan, Mr. Chairman. He was here making a presentation to another committee.
Thank you for taking time to listen to the new kids on the block. We have been around for only four months and I would suggest we have created a lot of interest.
I would ask you to turn to the back page of our brief. Outlined there are the 10 groups that are part of our broad-based coalition: the Wild Rose Agriculture Producers, Alberta; the National Farmers' Union; Saskatchewan Association of Rural Municipalities; Keystone Agriculture Producers; Western Canadian Wheat Growers Association; Southern Rail Cooperative; Advisory Committee to the Canadian Wheat Board; Western Producer Car Group, Saskatchewan Canola Growers Association and the Family Farm Foundation of Canada.
Anyone who is familiar at all with Saskatchewan, Alberta, Manitoba, and part of the B.C. Peace River area, must realize that putting together a group like this results in a broad base of representation of producers in Western Canada.
Interest has been sparked by the report from the senior executive officers put out on November 3, 1995, suggesting that the freight rate be increased by $1 per tonne for five years to pay for the cars; the cars would then go to the railroads.
A number of associations passed resolutions suggesting that, if we are to pay for the cars as producers, we should own them. With that interest, a number of phone calls were made through November and December of 1995. On January 4, we held the first meeting of the coalition. Since then, we have had several meetings and several conference calls. We have progressed very well in the four months that we have been together.
Moving into a deregulated system certainly creates some concerns for producers in Western Canada. We need some security. We feel that part of the security rests in the purchase of these cars. It is certainly not our intention to interfere in the system. It is our intention to help to streamline it. We feel we would have some important input into the transportation system in Western Canada should we gain these cars.
The second page of the brief outlines our goals, objectives and principles. These were agreed to early in the process. We aim to secure a reliable and adequate car supply for the movement of western Canadian farm products. Certainly it is our intention, when we bid on these cars, not merely to bid on the existing fleet, but to replace the cars as they wear out. We are in this for the long haul.
We aim to have producer influence on transportation issues. We realize that car ownership is only one important issue; we want a seat at the table on transportation issues on into the future. We feel that through this initiative we should assure ourselves of a seat at that table.
We aim to optimize benefits to primary producers and enhance the competitiveness domestically and internationally by promoting the development of an efficient, economical and affordable rail transportation system that will deliver products to our consumers in a timely manner. That speaks for itself.
We want to ensure fair and equitable access to all producers to the rail transportation system.
Those are our objectives. As for our principles, we want a complete transfer of the entire 13,000 federal hopper fleet. We intend to keep these in operation somewhat similar to the past. We do not feel it is in the best interests of Western Canada to break them up into lots of 500 or 1,000 under individual ownership. Certainly, we have been in contact with the potash industry and with Sultran and the sulphur industry. They have ownership or they lease their cars. They have had confidential bidding. It is our understanding in discussions with those people that they would not go away from owning or leasing their own cars; it has been beneficial to their industry.
The cars must be owned and operated as a common fleet. We spoke to that principle previously.
Financing the purchase of the cars should be through the lowest-cost mechanism, the most administratively effective, producer-accountable and acceptable mechanism. We are working on that process right now. The 75 cents has been talked about. It is in there. It will be reviewed in two years. It comes into being on August 1 of 1998. We are not sure how long it will stay there. There is some uncertainty with that sum of money. When you are about to buy an asset, you need to have a revenue stream that is certain. We have to do some more work with the federal government to discern their intentions there.
The governing body shall ensure that the movement of western Canadian agricultural products is the first priority for the use of the cars and that there will be no conflict of interest between the interests of prairie farmers and itself. The organization must be representative of all and directly accountable to the western Canadian farmers. As an initial benchmark, agriculture products would be defined as those that qualify for statutory rates. Provisions could be made for new crops as they are developed.
The governing body shall develop an efficient, effective, accountable administrative structure. It shall avail itself to existing available expertise while developing its own expertise as required.
That gives you a bit of an overview of what our intentions are, should we become owners of these cars.
We have had an expression of interest from the Ontario farmers on making some cars available to them. We had initial discussions at the Canada Grain Council annual meeting in Banff about one month ago. We have had two conference calls with the Ontario producers and we will meet with them this afternoon. I think we can work out some kind of arrangement whereby we would purchase the cars and, on a long-term lease, make a negotiated number of cars available to them.
There is also an area in B.C. which has been deprived of cars. We consider it as part of the western region, but they are served by B.C. Rail. That is an area that has been neglected in the past. We feel that, through ownership of cars, we may be able to address their needs.
In the present agreement between the federal government and the railroads, we understand there is the right of first refusal. This creates great concern for us. We have discussed this with the federal government. They say it will be addressed, but as yet we have had no proof of that right being removed.
Going into this exercise, we must be on a level playing field with all other bidders. If we go to the time and expense of putting a comprehensive bid together and then at the end of the day the railroads can walk in and match our bid, that is not a level playing field as far as we are concerned.
We need your help, senators, to have that issue addressed as quickly as possible. We have spent considerable money up to the present, and we will be spending a large amount of money in putting our proposal together. As long as that right of first refusal is there, it creates a lot of concern.
Car allocation is tied very closely to ownership. Certainly, it is one of the keys.
We are supportive of what was in the federal budget on the car allocation policy group. We have selected a person from our group to sit as the producer representative on that CAPG group. They are in their infancy. They are having one of their foundation meetings next Thursday and Friday, May 9 and 10. We are supportive of that. We see that as a high-level allocation group. They will not get into the day-to-day allocation of cars but will be concerned with the general policy-making issues.
We understand that the federal government has selected a financial person to put together the call for proposals. As Mr. Migie indicated, they will be coming out towards the end of May to discuss this with us. The call for proposals will come out in late June or early July, and we will have the summer to develop our proposal and will present it this fall. We do not have much time to put this proposal together. It will take a lot of our time and effort, but we will have to start seeding once the ground dries up. I noticed in flying over Manitoba that Les Jacobsen will have a day or two yet before he can get onto his land.
This is an interesting and exciting experience. There is strong producer support across the prairies on this initiative. That is one of the things holding the coalition together with the cohesiveness that we have experienced to date.
Mr. Art Macklin, Farmers' Railcar Coalition: The degree of unanimity among prairie producers on this issue of hopper car ownership is remarkable. We have faced some very significant changes as western Canadian producers with the elimination of the Western Grain Transportation Act, not only losing the subsidy of close to $600 million but also all the regulatory framework that guaranteed that monopoly railroads would not be able to charge a rate and capture all the rents and all the benefits from grain prices. That has all been changed.
The government has indicated that we will not go to a completely deregulated system, but the direction is toward less regulation. In presentations that the railroads have made yesterday and today to the House of Commons committees, they have indicated that they want to push toward direct shipper-carrier relationships with no third-party involvement. When they say "no third-party involvement", that means "everyone for himself," and the biggest players with the most power will be setting the rules. Perhaps we are not going completely to a U.S. system, but the direction is that way, as is the push.
We are saying as producers that, if that is the nature of the new world, we as producers also need some power in the system. Rail cars are one way for farmers to have a real asset and a place at the table. In fact, when you look at our stake in the agricultural industry in terms of total value, our farms, our machinery and our other investments dwarf the investments of the grain companies and railroads. Collectively, we have a far bigger stake in this than those parties. However, in terms of direct investment in transportation, we do not have the assets. We know we will be the ones who have to pay for it all.
At this time, with this opportunity to purchase the cars, which we will pay for one way or the other, we might as well own them and have the security of knowing that they will remain in Canada. We will be the owners. We are Canadians. It is our grain that we want to move. We will have a place at the table as we go into this new less-regulated world where none of us really know what will happen five years from now.
Farmers are prepared, first, to purchase these cars and, second, to try to encourage cooperation among all players in the system: the railway companies, the grain companies, the Canadian Wheat Board and the terminal operators. We pay the costs of the whole thing. We are the ones who have the greatest stake in driving an efficient, economical system with good cooperation.
Mr. Les Jacobsen, Farmers' Railcar Coalition: I should like to respond to Senator Taylor's comments on our coalition. The divergent views that sit around that table show the commitment of producers in this one exercise for the importance of having a say in the allocation system for our grain industry. It is to the producers' benefit that we are all able to stay around that one table and that we have put a nomination forward to be part of the CAPG group. The commitment is there. We have shown over the past four months that our group can stay together and make decisions for the betterment of the Canadian grain industry.
The Chairman: Thank you, gentlemen. Why are the wheat pools not supporting this? They ship 60 per cent of all the grain out of the prairies. I ask that as a grass-roots senator. I understand that the wheat pools are not supporting this.
Mr. Jacobsen: I can shed some light on that. In fact, the official position of the Prairie Pools is in support of the SEO package, not producer ownership. Nonetheless, Manitoba Pool elevator delegates at their annual meeting last fall passed a motion instructing their management to support ownership by producers and specifically, actually, the Canadian Wheat Board. In fact, they have a bit of a problem in terms of accountability between delegates and management. There is quite a bit of dissension within Saskatchewan Wheat Pool delegate structure over this issue, as well within Alberta Pool delegate structure.
If you go into Western Canada and ask producers, "Does pool management represent you," you will receive quite a range of answers. Many feel that the executive level of the prairie pools has lost touch with producer-grass-roots interests. I am a strong Alberta Pool member.
Mr. Harrison: The cooperatively owned elevators of the past are not the ones we know today. They both trade on the Toronto Stock Exchange. You and I know that he who finances you calls the tune. The Toronto Stock Exchange finances UGG and the Saskatchewan Wheat Pool. I think your answer lies in that.
The Chairman: There is a concern about the allocation of cars and that there might be a pulling apart of various farm groups which would in some way fracture that whole area. How would you work within the Canadian Wheat Board? The Wheat Board has allocated cars in the past and done a pretty good job of it. How would you work that out?
Mr. Jacobsen: Clearly, in our presentation and all our communications with others in the industry, we are supportive of the CAPG proposal, which has the grain companies, the railways, the Canadian Wheat Board and a producer representative working in cooperation, managing this fleet as a common fleet. There are significant efficiencies to the total system by operating this as a common fleet. We want to continue that practice. In fact, if you break the common fleet up into various parts and if you do not have the port pooling, you could have a loss of efficiency in the order of 15 per cent or 20 per cent. That means that we, as producers, must buy more cars. That will come out of our grain prices. We want to encourage a continuation of the system that has given us proven efficiencies, and we want to help encourage increased efficiencies, if that can be done.
Senator Hays: I understand your motivation is that, in the changed regulatory environment or legislative environment, you would like to ensure that the existing rolling stock stays in Canada and that producers have a say in car allocation. To that end, you are prepared to buy the cars. That would give you an important role.
Are you happy with car allocation the way it is now? You could buy the cars now. You could get $100 million or $500 million together to buy bigger and more efficient cars. The discount makes it attractive. It is even more attractive, if Senator Taylor has his way and you get the cars for nothing. However, that is perhaps a 10- to 20-year plan, because those cars will wear out. In order to maintain that place at the table, you will have to replace the cars within 20 years, or at the very least maintain them. If you had to pay fair-market value for them today, tt would be as expensive in 20 years to get a place at the table as it would be today.
Are you happy with the way things are? If you are, why not fight for the system you have now, which does not cost you anything? You can go about your business of farming instead of having these high costs. I you do not, you will have to set up an executive structure and pay people a lot of money. You will have to recover those costs, and you will have to obtain financing.
Senator Taylor: They did not start it; we started it.
Senator Hays: Do you mean the government?
Senator Taylor: Yes.
Senator Hays: The government wants some bucks and it wants deregulation.
Mr. Jacobsen: You did not hear most farm groups saying, "Take away the subsidy and throw us out into this deregulated world." Some did, but many farm groups said that there might need to be some changes and improvements in the WGTA framework and structure, but let us make those improvements. They did not want to throw the whole thing over the side and let it float down river. So we did not exactly drive that idea.
With respect to the current allocation system, we recognize that oftentimes there is a shortage of the resource, the rail car, to move the product. That will continue to happen from time to time. I do not think we want to build a system that can move all the product in one, two or six months. In fact, that would be too costly. Therefore, we must schedule things, and we need some mechanism to allocate it fairly.
I think there is room for improvement. However, when comparing Canadian statistics to American statistics, the American system is basically a deregulated system where you have carrier-shipper relationships. The GTA statistics indicate that Canadian car turn-around times on average in the system in 1992 were 19 days overall. The American statistics -- and I assume that they compared apples to apples -- indicated a 26-day turn-around time. Canadian Wheat Board grain turn-around time was 18 days. There was an improvement where you had the coordination of the CWB as opposed to non-CWB grains, where you did not have that planning and coordination role. There were complaints because sometimes people have to wait. However, compared with the system in the U.S. and looking at reasonable cost situations, it was not that bad. It could be improved, but it really was not that bad.
Senator Hays: You are talking about the cost of the cars, whatever they happen to be, if they are more than a dollar.
Mr. Harrison: We tend to use our port capacity 100 per cent, whereas much of the U.S. system is only using half that amount or sometimes less. The same applies to the rolling stock.
You asked a question about our purchase of an asset that is half worn out. We realize that. The federal government conducted three separate studies on the value of those cars, and they came in at about $400 million. That is the asset we are looking at. The 75 cent limitation on the freight rate does not allow us to pay that much for that asset. Therefore, we are buying a discounted asset. That is good business. Any time you can buy something for 50 cents or 25 cents on the dollar, we feel that is good value.
There is new technology in rolling stock. They have upped the weight limit that these cars can haul, and you have all noticed that we have had more train wrecks in Western Canada this year than ever before. My humble opinion is that we are doing the same thing with our road system that we are doing with our rail system. We are increasing the weights we put on them without adding to the structure underneath.
You can build the biggest car you want, to hold as much as you want, but if you do nothing for the structure underneath, you are destined to wreck it. I suggest that the cars we are purchasing are the cars that the rail system was built for, not the superstructures of tomorrow that will go faster and haul bigger loads.
Five years down the road, the new technology might be using smaller, aluminum cars, because those rail beds will only hold so much. People say that these new cars we will keep them on the main line and not put them on the branch lines, but that is malarkey. I mean, a car is a car, and it goes wherever it has to go to pick up grain.
The same thing applies to A trains, B trains and trucks. People say they will keep them on Highway 1. When they bring a load of fertilizer to my farm, they come down Highway 1, the provincial highway, and then down the municipal road to my farm with a full load. You have to use common sense in this system.
We suggest that the weights in the cars we are looking to purchase are perhaps the weights that should ride on our rail system.
Senator Hays: This is an interesting problem. I am with you guys, but I must say that I do not have it figured out yet.
Mr. Harrison: We know we have a tiger by the tail here. We do not profess to be experts. I have learned a lot in the last four months, but I have to learn more in the next two months.
The Chairman: With respect to roads, the Wheat Pool indicated in its presentation that if the competition were to move to trucking, it would mean a truck rolling into Vancouver every two minutes.
Senator Spivak: Twenty-four hours a day.
Senator Hays: Three hundred sixty-five days a year.
The Chairman: We all understand that. On the other hand, we do know that the biggest percentage of canola today is being trucked. I think that is probably true of Alberta and Manitoba as well. I know it is true in our area. It is being trucked by B trains and so on, some of them going to North Dakota and some to Saskatoon.
Where do you see that kind of competition as it relates to you? We all know the problems of the roads, especially from the SARM.
Mr. Harrison: It must equate to the least costly system for everyone. If you were a railroad company and just worried about a railroad, you would have two main lines going across Saskatchewan. That would give you the best bottom line. We know that. The railroads know that. Some say that is what we will end up with some day.
If you are a grain company and are just worried about the grain company, you will a have a few points on those main lines and everyone will truck to them. If you are a rural municipality, your opinion is different again.
At the end of the day, it is the producer, not the railroads or the grain companies, who pays the bill. He is the guy who has to have the least costly system.
The Chairman: Five or six major terminals are projected to be built in Saskatchewan alone. The trend is in the direction of the terminal-type collection system.
Mr. Harrison: Something else that concerns us very much is that the trucking industry buys fuel. The farther you haul, the more fuel you need. There is tax on that. The federal government returns four per cent of the fuel tax to the roads. The rest goes into the general treasury. Don't think that the federal government is subsidizing our road system. We are subsidizing them. In the province of Saskatchewan, 40 per cent of the road-related revenues -- the licence fees and fuel tax -- goes into our roads. Alberta is better. They are wiser, and they put more dollars into their substructure, and their roads are standing up much better. Certainly, it has to be a least costly system with all the players at the table.
Senator Rossiter: Since I am from the maritimes, I am not too well versed in western agriculture, but I can see where you are coming from and why you are looking for support, which I think you deserve. What is the average cost of a hopper car now, the length of useful service of such a car, and the average yearly maintenance cost?
Mr. Harrison: Are you asking what a new car costs today?
Senator Rossiter: Yes.
Mr. Harrison: It depends on bells and whistles, but approximately $75,000.
Senator Rossiter: I am not talking about the great big one you mentioned before.
Mr. Harrison: A new one like the Canadian government owns now is probably in the range of $65,000 to $75,000.
The maintenance is built into the freight rate right now, and the railroads are compensated over $4,000 per car to do it in their union shops or whatever. We feel there are considerable savings if we as owners of the car can withdraw that maintenance fee out of the freight rate and pay it to the rightful owner of the car. We can go out and tender the maintenance of those cars.
There is a set of standards across North America that regulates how you maintain a car. You cannot buy the cars and run them into the ground, because it is not allowed. If that car is down in the States and it breaks down, there is a set of rates that is established as to what you can charge for fixing it. Once we get them back into Canada and get them onto the prairies and generate some jobs there, we feel we can have significant savings on the maintenance side.
Senator Rossiter: How long will a hopper car last with ordinary usage?
Mr. Harrison: It can last up to 40 years. The Saskatchewan Grain Car Corporation owns 1,000 cars. The Alberta government owns 1,000 cars. They have totally dismantled some of those grain cars which have been in service for 20 years, and they feel that we may get even more than 40 years out of them. A grain car is not a complex piece of equipment. Those of us who farm have combines and tractors that are much more complicated to maintain.
Senator Rossiter: Once you take the wheels off, you have a box.
Mr. Harrison: We do not feel you have to be a rocket scientist to maintain a grain car.
Senator Taylor: Have you thought about doing a little bit of underground work by going to the provinces and seeing if you could get their cars for $1, provided, of course, the province will not turn it over to you unless the federal government does the same thing? It might be a way of taking a shoe off the federal government foot, so to speak, and lighting a match under it. I think Saskatchewan and Alberta would look at that.
Senator Hays: Remember, you are on the government side now, Senator Taylor.
Senator Taylor: I represent Alberta.
Mr. Harrison: We have had some discussions with both Alberta and Saskatchewan. The Saskatchewan government has done several studies. You all know that studies are just as good as the guy who writes them. One of those studies indicated that it certainly benefits western Canadian agricultural producers to own the cars. They use the figure of $3.5 billion over 20 years. I am not sure how reliable that is, and I am sure someone will come out with another study countering it.
I brought some studies with me if you want to peruse them. The Saskatchewan government has come out very strongly in support of producer ownership. They got off the fence about two months ago, and they are making no bones about it.
Senator Taylor: Alberta is still dancing around.
Mr. Jacobsen: The Alberta government has really not given any clear indication that they want to sell or what they want to do with the cars. Possibly, with the Alberta government's financial commitment to the port of Prince Rupert, with all the Heritage Trust Fund money in there, and the fact that Prince Rupert, with the elimination of the WGTA, is now a residual port because it requires higher freight to get there, the Alberta government will save its cars to ensure that some grain gets shipped to Prince Rupert, so that their Heritage Trust Fund investment does not go down the tube. We do not really know what the Alberta government is intending to do with its cars at this point in time.
Senator Spivak: What is your analysis of the interests of the Minister of Transport in terms of producer ownership? The talk about rural development and the future of agriculture has sort of gone by the boards. What is the impact of these high-throughput terminals on small towns and rural development and on the economic situation? That is a cost. How will that cost be borne? Surely all these things are related.
The elevators and rail-line abandonment, the shortline railways, the trucking costs, the cost of shipping grain and the export costs must be considered all together. Is the government looking at this in that way, or is it looking at the railway's rate of return?
Mr. Harrison: I will make a comment about the rural development. Certainly, in the past, the elevator was the biggest taxpayer in town. You cannot build a large concrete elevator with a 50 car spot in the middle of town, because you have to close every crossing for a mile upstream and a mile downstream. It is a given fact that those are not going to be in urban areas but in rural areas. Certainly, it has a big impact. When you pull the biggest taxpayer out of town, everyone else has to pick up the slack, so it has a dramatic impact on rural development. We will not change that one. We have to find someone else to fill that shortfall on the tax base.
It is not our choice where these elevators go. From time to time, the elevator companies and the railroads will sit down and have a nice, friendly conversation, but the decisions are made in the back boardrooms.
Mr. Macklin: It is important to note that, as agricultural producers, we are living in rural Western Canada, or rural Canada. Having the opportunity to own these cars gives us a little more comfort that we will be able to have some say in what really happens with some of the rural development issues in the future. It is that allocation side that actually brought Manitoba to the table. We were seeing part of the SEO package, and there were no answers coming to our questions. This is the only way that we were able to get back to the table and be part of the CAPG group.
Mr. Jacobsen: We see the kinds of problems that producers in the U.S. have with the deregulated rail transportation system. We see situations like the one in Montana, which is captive to Burlington Northern, where producers in Montana have to pay $278 more for a rail car to move their products from Billings to Portland, which is 900 miles, than producers from Alliance, Nebraska, who go about 1,400 miles. Montana shippers do not have intermodal competition or other rail competition, so Burlington Northern extracts a rent from them because they are captive shippers.
We want to have an influence in this system, to the extent that we can, to see that we get a fair allocation process for all producers across this country. That is very critical to rural development. If I in the Peace River country do not have access to rail cars and have to wait and cannot move my product, or if I have to go with bid cars in order to get service, that is a large disincentive for rural development. That is a very common thing in the U.S., where there are no tariff cars, but it is all bid cars, and you have to pay $300 or $400 in addition to the tariff rate in order to secure rail freight. That is a very large disincentive for rural development.
We want to see a fair and equitable system that is efficient, and we do not have confidence that there will be the regulation there was in the past to ensure that that happens. Therefore, we as producers must have some real power in the system.
The Chairman: It appears that there will be more movement of grain into the United States. I live right along the Regina Minneapolis, and there is train load after train load where the CPR has the running rights. You all know the problems of the trucking situation and what is going on at the borders and the conflicts that exist. It appears that when grain is shipped down into the States by rail car, it does not become controversial. However, when it is shipped by truck, it becomes controversial simply because it is a political issue.
How will you be able to deal with this situation in regard to allocation of cars and control of cars going into the United States? Do you see that as a problem? Is that a problem that must be solved?
Mr. Harrison: First and foremost, you must respect the law, and I am not sure all producers in Western Canada are respecting the law. There are legal ways of trucking grain to the States. There are those who have chosen to ship grain by truck illegally, and the courts will decide who is right and who is wrong. They are challenging the law, but the U.S. is our biggest customer and we will have to service them one way or the other.
The Chairman: That is the point I make. As far as the whole question of shipping grain and return goes, that is where the problem lies. If you ship it under permit from the Canadian Wheat Board, of course you end up getting the same price you get at the elevator, and you mail the cheque back to the Canadian Wheat Board and it will take the pooling price.
Mr. Jacobsen: There are political frictions between Canadian producers and American producers, and they do not like to see those Canadian trucks coming down there and plugging their elevators. I think it is a matter of having some effective marketing strategy. If you sell directly to end-users, and do not use or plug up their handling system, or if you ship by rail car or ship by laker on the Great Lakes through to mills in Buffalo, for example, you in fact can then ship tremendous amounts into the U.S. with minimal political consequences. It is a matter of having some sort of managed marketing into the United States rather than helter-skelter marketing.
The Wheat Board has managed exports into the U.S. by being sensitive to U.S. political problems and being careful in the manner in which it did its shipping.
The problems arise when producers, wanting to directly access the U.S. with their trucks, plug up the nearest delivery point to the border. That then causes large political problems.
The Chairman: Gentlemen, I thank you for appearing before the committee. You have been most informative.
The committee adjourned.