Thank you, Mr. Chair and members of the committee.
My name is Jean-Marc Ruest and I am the vice-chair of the board of directors of Cereals Canada.
Cereals Canada is a value chain organization that includes representation from farmers, crop development and seed companies, and shippers, exporters, and processors. The brief that has been circulated to members includes additional background on the organization.
On behalf of Cereals Canada, I want to thank the standing committee for the invitation to appear before you today. Reform to legislation governing rail transportation for grain is critical if Canada is to meet growing demand and maintain a reputation as a reliable supplier. Failure to reform our regulatory framework will negatively impact the entire value chain, including farmers, grain handlers, and exporters.
In order to properly speak to the provisions of the Fair Rail for Grain Farmers Act, I would like to start by saying a few words about the review of the Canada Transportation Act itself. The review of the act was accelerated because of the 2013-14 grain transportation crisis. This crisis impacted the entire value chain, and damaged Canada's brand and reputation as a reliable supplier of agricultural products. The crisis cost farmers, grain-handling farms, exporters, Canadian value-added processors, and the Canadian economy as a whole. Canadian agriculture and the Canadian economy cannot afford for this to happen again in future.
The CTA review report, referred to as the Emerson report, did not fully address the fundamental problem of railway market power and the impact it has on the availability of rail service to meet the needs of Canadian grain shippers. The report is built on a basic assumption that there is a competitive transportation environment in Canada. This assumption does not apply to western Canadian grain sectors. Virtually all shippers are served by one carrier, and are subject to monopolistic pricing and service strategies. Therefore, the government has a critical role to play in establishing a regulatory structure that mimics a competitive environment.
Cereals Canada has recommendations for immediate action and long-term requirements that will help accomplish our common goals for a successful grain transportation system. Looking first at the provisions of the Fair Rail for Grain Farmers Act and specifically to extended interswitching provisions, the current extended interswitching distance of 160 kilometres should be extended indefinitely. This provision is proving to be an effective tool to provide additional competition between the two Canadian class I railways as well as with at least one other North American carrier. Its very existence provides eligible grain shippers an extremely useful competitive tool to access in negotiations with rail service providers. This competitive provision is of benefit, is being used, and it must be retained.
Turning now to the minimum volume requirements, the Fair Rail for Grain Farmers Act allows the government to set minimum required grain volumes that must be moved by the railways. Cereals Canada is recommending that these provisions of the act be retained beyond 2017. These provisions should be extended until legislation is enacted that will introduce true commercial accountability to all system participants. The 2016 crop will be of similar size to the crop of 2013 that preceded the transportation crisis. These levels are not an anomaly but the new normal.
Our production is diverse, and is destined to between 100 and 200 countries around the world. If we do not meet our contractual commitments in each of these markets, our reputation as a reliable supplier will suffer irreparable harm. Retention of the minimum volume provisions will allow for rapid and decisive response from Canada if past transportation failures begin to recur.
With respect to longer-term requirements, Cereals Canada believes the issue of commercial accountability must be addressed. A hallmark of modern commercial relationships is that parties are held accountable to each other for their respective performances. Grain shippers have long been bound to performance standards with financial penalty through tariffs unilaterally set by the railways. However, there is no mechanism for shippers to hold railways commercially accountable for their level of service to the shippers they serve.
In practice, because of the imbalance in negotiating power between railways and captive shippers, railway penalties for non-performance cannot be commercially negotiated. Railway accountability requires a legislative backstop. Without this, little can be done to systematically address service failures, and there's almost no way for shippers to hold the railways accountable for inadequate service. Accountability for service commitments is a prerequisite to preventing another grain transportation crisis.
Secondly, we also need to better define what constitutes adequate and suitable rail service under the transportation act. The railway service obligations are set out in the Canada Transportation Act as “adequate and suitable accommodation” of traffic. This term is not well defined and has been the point of dispute between railways and shippers for many years.
The CTA review report or Emerson report recommends changes to the definition that we believe would dilute the current definition of obligation and negatively affect grain sector shippers and those in other sectors from accessing the competitive provisions within the Canada Transportation Act. Instead, Cereals Canada recommends enshrining in law the principle that rail service provision be demand-driven as opposed to supply-driven. The nation's economy cannot be expected to fully capitalize on global marketing opportunities when the ability to provide the goods to international customers is governed by one's domestic rail service provider.
Thirdly, we must review the powers of the Canadian Transportation Agency. The Emerson report recommends that the CTA be given the authority to act on its own motion to investigate railway service issues and that it be given the power to issue ex parte orders in situations requiring urgent attention. This power would relieve shippers of carrying the sole burden for challenging railways in circumstances in which service is inadequate, by empowering the agency to investigate systemic issues and to take action where necessary. This is one recommendation from the Emerson report that is supported by Cereals Canada.