Western farmers, on average, should pay 7.4 per cent less to move their grain to export in the 2009-10 crop year that starts Aug. 1 due mainly to lower railway fuel costs, the Canadian Transportation Agency (CTA) announced April 30.
Assuming normal grain-shipping volumes, farmers collectively should, on average, pay $28.41 a tonne to ship grain next crop year, down $2.27 a tonne from the current crop year. The total saving to farmers is an estimated $68 million, but could vary with the volume of grain and the average length of haul.
But what farmers should pay and what they do pay aren’t always the same. For example, in the 2007-08 crop year the railways, on average, overcharged farmers $59.8 million or $2.23 a tonne. Under the Canada Transportation Act, such overcharges, plus penalties, go to the Western Grains Research Foundation. Farmers will get some future benefit through enhanced research, but are still out the money.
The Canadian Nat ional Railway Company (CN) and Canadian Pacific Railway Company (CPR) are free to charge what they like for transporting western grain, but under the Canada Transportation Act the total revenue they are allowed to collect from grain shipping is capped by law to prevent gouging. When first introduced in 2000 the railways said the cap would be irrelevant because competition would keep earnings well under the cap.
The formula used to set the revenue cap – the Volume-Related Composite Price Index (VRCPI) – is adjusted annually by the CTA to reflect changes in railway operating costs for fuel, labour and the cost of capital.
In 2007 the CTA cut the VRCPI 5.4 per cent, including an eight per cent reduction to reflect a lower allowance for hopper car maintenance costs. The revenue cap formula let the railways charge $4,000 a year per car to maintain the federal government’s hopper cars, but the railways only spent $1,700.
The railways exceeded their 2007-08 cap by almost as much as the cap was reduced. The railways went to court but Feb. 18 the Appeal Court of Canada upheld the CTA’s decision. Two weeks ago, the Supreme Court of Canada rejected the railways’ petition to seek leave to appeal, ending any further appeals.
Although the railways have exceeded their caps before, it was only a small amount, representing just a few cents a tonne. Industry observers believe 2007-08 overage was an anomaly related to car maintenance.
Last April the CTA increased the VRCPI eight per cent for the current 2008-09 crop year, mainly because of higher railway fuel costs. Fuel costs have since declined.
In late December the CTA will announce how much the railways collected for shipping grain in the current crop year, which ends July 31, and whether or not the rail revenue was under or over the cap. [email protected]