The National Farmers Union (NFU) has a well-deserved reputation for doing sound analytical work. That’s why I was disappointed in its opinion piece published in the Manitoba Co-operator June 17.
The NFU contends G3, the company taking over CWB — the remnants of the old wheat board — is planning to build a grain terminal in Vancouver in an attempt to drive down grain prices to farmers and pocket the money. But what really caught my attention was the NFU’s view that the 2013-14 backlog in grain shipments from Western Canada was caused because the Canadian Wheat Board no longer had a sales monopoly and wasn’t co-ordinating grain transportation and export sales.
I disagree on both points.
You can’t fix a problem until you know the cause. It’s remarkable that NFU, in essence, is absolving the railways’ role in the debacle that University of Saskatchewan agricultural economist Richard Gray estimates cost western farmers $5 billion in reduced grain prices. Grain companies widened the basis — the difference between elevator and futures prices — when farmers offered to sell more grain than the system could handle.
Sadly, I fear the NFU has committed the same sin as those who unfairly attacked the wheat board’s monopoly, including the federal government, using fallacious arguments.
A lot of factors contributed to the backlog, including the coldest winter in 100 years, but I think inadequate railway capacity is mostly at fault.
On the eve of the 2013-14 crop year the railways told the Western Grain Elevator Association (WGEA), which represents most of the West’s grain companies, they would deliver about the same volume of grain as they did during the 2012-13 crop year, despite what turned out to be record grain production.
According to the WGEA, the railways were unwilling to add more power and crews to increase capacity knowing they’d move the grain eventually because there are few economic alternatives. Why invest more to move grain faster when you can move it over a longer period for the same cost?
When the cold weather hit, rail movement fell below the previous year’s.
Had the single-desk wheat board still existed, farmers would probably have, on the whole, earned more money as the board’s mandate was to return all revenue to farmers after expenses. That’s the argument the NFU should be making.
The wheat board saw the big picture — an advantage when co-ordinating grain transportation and export sales. Still, backlogs occurred under the board, including in 1996-97 — another wicked winter. However, the wheat board was able to get compensation out of the railways.
We also know most western Canadian grain companies want to export via the West Coast because that’s where the highest return is.
It’s also known if there’s a big crop it can’t all move through the West Coast because capacity is lacking. That’s why years ago, the wheat board established a Freight Adjustment Factor.
So long as more grain wants to be exported from the West Coast than the system can handle, farmers won’t capture their grain’s full value. All the co-ordination in the world can’t change that, but adding West Coast capacity can. It applies under a single desk or an open market.
Resurrecting the single desk would see farmers capture more value through reduced basis, but they’d still have to store grain so long as the system was constrained, which is a cost to farmers.
The solution is to encourage the railways to move more grain and add terminal capacity at the West Coast. That could involve changing the maximum revenue entitlement so the railways earn more shipping during the winter when it costs more to operate.
Scrapping the entitlement will only mean higher freight costs and the same poor rail service in the absence of railway competition.
The terminal capacity at Prince Rupert is underutilized because the grain companies that jointly own it prefer to maximize revenues by pushing grain through their own facilities in Vancouver. Changing Prince Rupert’s ownership structure might encourage better use of existing capacity.
If G3 builds a new Vancouver terminal, that will help too. Western Canada’s grain industry needs more capacity and competition to encourage a tighter basis. A new grain company with a Vancouver terminal is a step in the right direction.
Resurrecting the single desk is a long shot — about as likely as Alberta electing an NDP government. A better functioning open market will make it even harder to convince farmers and future governments to restore it.