The grain-shipping backlogs between 2013 and 2015 had “no negative dollar impact” on Prairie grain farmers, Agriculture Minister Gerry Ritz said Oct. 13 in response to a recently released study putting the losses in the billions.
University of Saskatchewan agricultural economist Richard Gray has published a study estimating grain-shipping delays during the winter of 2013-14 and 2014-15 slashed western farmers’ revenues by $6.4 billion to $8.2 billion.
“(I)f there had been that type of loss coming out of the grain sector in Western Canada AgriStability would’ve paid out huge money,” Ritz said in an interview Oct. 13. “And the other thing to point to is, we have the net incomes for those farmers for those years before, during and after it, and they keep climbing so there is no negative dollar impact on grain farmers in Western Canada through that glitch.”
Gray stands by his estimates prepared for the Saskatchewan Wheat Development Commission. He said drought in the United States kept grain prices relatively high.
“Yes, (western) farmers had a good year, but that doesn’t take away from the fact they could’ve been several billion dollars better off,” Gray said. “It’s unfortunate the minister isn’t better briefed.”
Western Canadian farmers harvested a record 76-million tonne crop in 2013. A huge shipping backlog developed. The railways blamed the big crop and the coldest winter in 100 years.
The backlog was so bad by March 2014 the federal government intervened, ordering the railways to move a specific volume of grain weekly or face fines of up to $100,000 per day.
As grain backed up on farms the basis (the difference between the country elevator and f.o.b. Vancouver price) widened substantially to discourage farmers from delivering to plugged elevators.
In 2012-13 when there were no constraints on moving grain export basis averaged $72 a tonne, but by February 2014, the wheat abasis exceeded $250 a tonne and the combined canola basis and crush margins exceeded $270 a tonne, a summary of Gray’s report states.
“With record volumes of exports, basis levels declined somewhat by the end of the (2013-14) crop year but were still 200 per cent of posted tariffs,” the summary says. “Higher-than-normal basis levels persisted for all of the 2014-15 crop year ranging between $100 and $150 per tonne, with a reduction in basis levels occurring at crop year-end as producers began to anticipate a drought-reduced 2015 crop.”
In addition, Gray estimated farmers lost $1.4 billion because wheat shipped from Vancouver sold at a discount to equivalent-quality American wheat as Canada was seen as an unreliable supplier.
Conservatively, farmers lost an average of $63 a tonne over two crop years, the summary says.
“For a 5,000-acre farmer producing one tonne per acre per year, this represents a total gross income reduction of $630,000 over the two crop years,” the summary says. “… each producer would have been impacted differently, but the average impacts were very large and economically important.”
Given that and that most western grain is drawn to the West Coast because export prices are highest there, Gray argues the grain-handling and transportation system needs extra capacity.
“This strategic approach must include a comprehensive analysis of future export needs and a full economic exploration of options to expand export capacity, including publicly supported infrastructure investment, improved logistics, regulatory structures and transportation policy.”
Ritz agrees expanding Vancouver capacity makes sense, but added there are still good exports to the east and south.
No one can quantify what prices farmers received when they sold their grain, Ritz said. Often farmers price well before they deliver.
“He (Gray) took a worse-case scenario and then he read into it ‘this is what happened’ — and it didn’t,” Ritz said.
Gray said he calculated losses by taking grain delivery statistics from the Canadian Grain Commission and matching with the average basis during that period. He also did the same calculation (see table below) assuming pricing occurred 12 weeks before delivery. That resulted in farmers “conservatively” losing an estimated $5 billion on the wider basis alone.
The Friends of the Canadian Wheat Board claims orderly marketing under the Canadian Wheat Board would have resulted in lower losses.
“The western Canadian economy has taken this huge hit… yet the Conservative Party just wants to talk about compensation for supply management,” said Friends of the Canadian Wheat Board chair Stewart Wells last week in reference to the Trans-Pacific Partnership. “They will spend taxpayer money to try and compensate these folks and yet there are these documented losses because of the decisions they took with the wheat board and yet they are just punishing western farmers instead.
“The Conservative Party can take a whole bunch of western seats for granted. Their MPs are just silent on the issue.”
Orderly marketing would have saved farmers a lot in lost earnings, Gray said.
“The basis would have been considerably smaller under the wheat board,” he said because contract calls would be used to meter grain into the system, not prices. “Grain would have moved in roughly the same amount of time, but the big difference would have been the farmers would get a lot higher price and the grain companies would have had to still compete with their available capacity.”
As well, the wheat board might have been able to get the railways to move grain even faster or draw attention to the problems sooner, he added.
Ritz said 99 per cent of farm groups supported ending the wheat board’s monopoly. “That’s why there is no backlash except for the people you can count on one hand — even today.
“Everything they were pointing to — and you have to realize there was a full moon last week — can be shot down with simple logic.”