“The railways … don’t want competition
and they don’t want
regulation. You can’t have it both ways.”
– IAN WISHART
Western grain farmers are overpaying the railways by an estimated $200 million a year or $6.87 a tonne to haul their crops to export, according to a study prepared for the Canadian Wheat Board (CWB).
That’s why the federal government needs to review the railways’ costs for hauling Prairie grain, says the CWB and five general farm organizations.
“We have one message here: we need the Canadian government to put a rail costing review in motion right away – not a year from now or two years from now – because farmers are heading into a difficult year,” CWB chair Allen Oberg told reporters during a news conference in Regina June 16. Officials from the Agricultural Producers of Saskatchewan (APAS), Canadian Federation of Agriculture (CFA), Keystone Agricultural Producers (KAP), National Farmers Union and Wild Rose Agricultural Producers (WRAP) joined him.
FAIR AND ADEQUATE
When rates were government regulated under the Western Grain Transportation Act (WGTA) between 1984 and 1995, railways were allowed to earn a 20 per cent contribution above costs. That was deemed fair and adequate and thought to be what the railways would earn in a competitive market, Oberg said.
But now John Edsforth of Travacon Research Limited puts the contribution, akin to a markup or margin, at 58.5 per cent.
“I think what’s happened here is the railways have gone over what’s socially acceptable,” KAP president Ian Wishart said in an interview. “They’ve crossed the line.”
According to Oberg, depending on the year, his farm overpaid the railways $17,000 to $32,000.
Farmers can find out how much they overpaid, based on Edsforth’s estimates, with the CWB’s website calculator (www.cwb.ca).
Farm leaders then want producers to forward the information to their MPs.
“It’s important to let the government know that this is an important thing to us… (and) what this is costing producers across Western Canada…” said WRAP president Humphrey Banack.
The CFA’s website has a prepared statement farmers can email their MPs.
Railways are failing to share their increased efficiency with farmers who contribute to that efficiency by hauling grain longer distances to fewer elevators and holding grain longer on-farm, said APAS president Greg Marshall.
“Let me repeat, no one is objecting to fair and profitable railways in Canada, but farmers cannot be shouldering an unfair share of the load,” he said. “Freight rates must be fair for farmers and railway companies.”
In 2000, the government introduced regulations allowing the railways to charge whatever rates they wanted to encourage efficiency. However, to protect farmers, the government capped the total revenue the railways could earn from shipping grain.
The cap was based on the last railway costing review in 1992, but rolled back 18 per cent to take into account railway efficiency.
The cap is adjusted annually to take into account higher railway costs and adjusted for the amount of grain hauled and the distance. However, there hasn’t been a costing review since 1992 when there were about 1,500 elevators, compared to just 240 today. There are a lot fewer branch lines too.
“Freight rates need to be on actual costs, not annual revisions based on outdated formulas,” Oberg said. “We’re coming up on nearly 20 years since the last full costing review.”
Farming and railroading have changed a lot since then, he added.
In a 2008 study, Edsforth estimated farmers were overpaying the railways by $100 million a year. The same groups called on Ottawa to do a costing review then too.
The federal government has said it would consider a review after Transport Canada’s review of railway service. That’s still the policy.
“Once the ongoing service review has been completed, the government will assess and consider the need for a costing review,” Rob Merrifield, minister of state for transport, said in a statement June 17.
According to Agriculture Minister Gerry Ritz the problem is the CWB, not the railways. When asked in the House of Commons June 17 if he would support a costing review he said: “We are not hearing any concerns from canola and pulse growers. We are hearing concerns from wheat board growers because they cannot value add. They are forced to do buybacks, which costs them far more than this supposed increase in freight.”
Edsforth’s estimates are based on shipping all the major grains, oilseeds and pulse crops.
Western Canadian grain farmers have among the most competitive freight rates in the world, according to Kelli Svendsen, a spokesperson for Canadian National Railway (CN).
“Any regulatory reduction in our freight rate could jeopardize reinvestment in this critical supply chain for Western Canada,” she said.
“CN’s regulated grain rates are 25 per cent or more below comparable rates in the U. S. on distance so we have a competitive system.”
Svendsen noted Edsforth’s data is based on the WGTA, an act that no longer exists. The revenue cap has no provision for a costing review, she said.
According to Svendsen Canada’s railways compete. Most of the grain CN moves is within 50 miles of a Canadian Pacific Railway (CPR) line, she said.
But Edsforth said the fact annual railway earnings are at, or slightly above, the cap shows there is no competition.
“The railways really want it both ways,” Wishart said. “They don’t want competition and they don’t want regulation. You can’t have it both ways.” [email protected]