The Canadian Transportation Agency has approved a 9.5 per cent increase in the railway revenue cap for the coming crop year and that has the Western Canadian Wheat Growers Association calling for a review.
“This represents a significant jump in freight rates,” said president Kevin Bender. “The government needs to review the components of the revenue cap and come up with a better approach to ensure farmers are not hit with unwarranted freight increases.”
The 9.5 per cent increase includes an adjustment for increased pension costs (4.6 per cent), a cost of capital adjustment (3.3 per cent) and an inflation component (1.6 per cent).
Noting there is limited competition in the western rail industry, the association says the revenue cap should not simply be adjusted to reflect railway cost increases. It should reflect costs that would otherwise exist if competitive market forces were at play.
“Simply allowing the railways to automatically pass along their cost increases is not an acceptable market-based solution,” says past president Cherilyn Nagel. “Ultimately we would like to see rates set in a competitive marketplace, but first we need to see a lot more growth in local grain processing and livestock feed markets, so we are no longer captive to exporting most of our grain by rail.”
The Wheat Growers note the revenue cap is based on a 1992 costing review, with annual inflation adjustments. One glaring deficiency in the rate-setting process is that the revenue cap is adjusted automatically to take into account increases in railway costs (mainly labour, fuel and materials), but no adjustment is made for productivity gains.
Over the past two decades, the railways have made significant productivity gains through an increase in the length of trains, increased rail car capacity, and investment in more fuel-efficient locomotives.
The WCWGA sent a letter today to federal Transport Minister Denis Lebel calling for a review of the cost components of the revenue cap and to ensure a mechanism is introduced to ensure a portion of railway productivity gains are passed on to farmers.