Updated grain freight cost study spurs calls for review

An updated study of what Prairie farmers now pay to move grain by rail, compared to their costs under the old Crow Rate, suggests the definition of “fair and reasonable” rates is still tilting in the railways’ favour.

“Farmers were supposed to share in efficiencies in the grain handling and transportation system from elevator and track closings, but so far we have not,” Greg Marshall, president of the Agricultural Producers Association of Saskatchewan (APAS), said in a joint release Wednesday. “We need a full costing review to determine fair costs for freight.”

APAS, along with the Canadian Wheat Board, Keystone Agricultural Producers, Wild Rose Agricultural Producers, Canadian Federation of Agriculture and National Farmers’ Union, on Wednesday released a study updated to cover the 2007-08 and 2008-09 crop years, on top of those from their previous study released in early 2008.

Rail analyst John Edsforth, whose Travacon Research firm conducted both studies as well as an earlier costing study on Prairie grain freight in 1999, found in the most recent data that farmers have paid $6.87 per tonne more than what was considered “fair and reasonable” compensation for moving grain under the Crow Rate as per former Western Grain Transportation Act, the groups said.

The new numbers found that in 2008-09, Prairie farmers paid $8.81 per tonne, or $275 million overall, more than was deemed fair and reasonable under the WGTA. In 2007-08, the groups said, farmers paid $4.61 per tonne, or $123 million, more than was considered fair.

High volumes, rail efficiencies and low fuel prices combined to create the increased amount in 2008-09. The 2008 Travacon report found railways made $5.49 per tonne ($156 million) more than what was deemed fair and adequate from grain freight in 2005-06 and an excess of $6.25 per tonne ($175 million) in 2006-07.

(The 2006-07 figure doesn’t include a substantially lower grain revenue cap for the railways, set at that time by the Canadian Transportation Agency.)

“No one is saying the railways shouldn’t earn a profit, but we are saying farmers should be paying a fair and reasonable amount,” said Marshall, a producer at Semans, Sask., in the joint release.

The freight bill “means thousands of dollars to the average farmer,” CWB chairman Allen Oberg, who farms at Forestburg, Alta., said in the release. “On my farm, this amounts to between $17,000 and $32,000 per year.”

“Scrutinized”

Railway costs for grain movement have not been reviewed since 1992, the groups said, adding that since then, the number of Prairie elevators at which railways collect grain cars has dropped from 1,500 to about 240, where most cars are assembled in multi-car blocks of at least 50 at a time.

In terms of competitiveness, Canada’s Prairie farmers must move their grain more than twice the distance to port compared to those in any other grain exporting nation, the groups said. A Saskatchewan farmer, on average, is 1,450 km from the nearest port, compared to 650 for a U.S. farmer in Kansas and 280 for Australian farmers, they said.

“This major competitive factor for farmers must change if western Canadian farmers are going to be able to compete in a global grains market,” Bob Friesen, a former Manitoba farmer and CFA president now heading the Strategic Agriculture Institute (FNA-STAG), a think-tank operated by Saskatoon-based Farmers of North America.

“The rail monopolies have increased their efficiencies, and in some cases on the backs of farmers,” Friesen said in a separate FNA release Wednesday.

“The market for grains is global and the Prairies are already further away from a port than any of the countries we compete with. The cost of rail freight must change if our farmers are going to be profitable.”

The groups’ proposed freight costing review is complementary to the current federal “level of service” review, FNA said in its release, adding that the two reviews must be kept separate but are “critically linked.”

That’s because a full “level of service” review can’t be done without knowing whether railways are charging freight within the parameters given to them as a trade-off for not allowing dual running rights, FNA said.

“As long as Canada does not enable competition through methods like dual running rights, it’s imperative that freight rates are scrutinized and set at a competitive level for farmers. That includes reflecting new realities like the efficiency gains made by the railways after the last cost review was done.”

The CWB on its website has posted an online calculator it said will allow farmers to gauge the excess in their freight bills.

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