Pleased and relieved.
That’s how western Canadian grain farmers and elevator companies are reacting to a one-year extension of emergency grain-shipping measures first implemented by the former Conservative government in 2014 to address a backlog in grain shipping.
The four key provisions, which came into effect under the Fair Rail for Farmers Act, were set to expire August 1.
They give the federal government the power to set minimum grain movement volumes for the railways, provide for arbitration of service level agreements between shippers and the railways and compensation for rail service failures and extend interswitching to 160 kilometres from 30.
Interswitching allows an elevator serviced by one railway to ask another to move its grain, so long as there is a connection within the prescribed distance.
Both farmers and grain companies say extended interswitching has stimulated railway competition.
“This provides an element of competition between major railways and has emerged as an effective tool in establishing more competitive rates and service levels,” the Canadian Canola Growers Association said in a news release.
As of May, more than 2,900 rail cars moved via interswitching, Wade Sobkowich, executive director of the Western Grain Elevator Association, said in an interview.
Eighteen hundred cars from elevators on the Canadian Pacific Railway (CP) were moved by Burlington Northern Santa Fe (BNSF), he said. BNSF moved 1,100 cars from elevators on the Canadian National Railway. And CP moved four cars from CN lines.
“By giving shippers some choice it effectively turns a monopoly into a duopoly in many cases and a duopoly is better than a monopoly when it comes to trying to get better rates and service,” Sobkowich said.
Just the threat of interswitching helps grain companies negotiate better rail rates and service, he added.
The Canadian Oilseed Processors Association (COPA) commended the government’s action and said interswitching was especially important to its members — companies that crush oilseeds to produce vegetable oil and meal.
The Keystone Agricultural Producers (KAP), Canadian Federation of Agriculture (CFA), Agricultural Producers of Saskatchewan (APAS) and Canadian Canola Growers Association, also welcomed the extension.
“It is another step forward,” KAP president Dan Mazier said in an interview. “But we don’t want to lose momentum.”
Rail service is essential for farmers to get their product to customers, he added.
“You can put all the trade deals together you want, but if we don’t have anybody taking grain to market it is all for naught.”
Canadian National and Canadian Pacific railways opposed the extension, saying grain shipping will improve with less regulation, not more. Both have noted new grain movement records were set since the backlog, which they blamed mainly on a record harvest and colder-than-average winter.
In April the government promised a one-year extension, but with House of Commons to rise for a summer break, farmers and shippers weren’t prepared to relax until the motion passed, as it did, first in the Senate and then in the Commons unanimously, June 16.
While Aug. 1, 2017 is a long way off, it takes time to get proposed legislation into law. That’s why farmers and shippers vow to keep the pressure a permanent fix.
“This is the most important issue the Western Grain Elevator Association (WGEA) has worked on in recent years,” Sobkowich said. “We will continue to advocate for fairness and balance in the rail freight system so that we can have some certainty in bringing our product to market for the benefit of the entire industry — grain handlers, farmers and the Canadian economy. We are going to continue to do that until we succeed.”
The WGEA and farm groups claim CN and CP are monopolies that don’t have to invest in increased shipping capacity because grain shippers are captive. They want regulations mimicking a competitive market.
To that end the WGEA has five recommendations:
- Make 160-kilometre interswitching permanent.
- Make rail service demand driven not supply driven.
- Make railways subject to penalties, as grain shippers are now, for failing to meet service requirements.
- Give the Canadian Transportation Agency the authority to investigate railway service on its own and issue orders in urgent situations.
- Set aside discussions on freight rates until service and accountability issues are resolved.
These measures require amendments to the Canada Transportation Act, now under review.
During a Commons debate of extending the provisions Liberal MP Vince Badawey said the rail system in Western Canada “has fully recovered from the challenges of the winter of 2013-14 and a healthy grain crop is moving well through the supply chain this crop year.” As of the end of April 2016, western grain shipments totalled almost 34 million tonnes‚ five per cent higher than at the same time last year, he said. Shipments out of western ports to export destinations exceeded 27 million tonnes, up seven per cent.
The improved performance sets the stage for considering “the best approach to ensuring optimal performance over the long term.”
Former Conservative agriculture minister Gerry Ritz, who was the main driver behind the fair rail bill, said the extension “gives us some breathing space.” He also said it’s important to “keep the lens on the railways to ensure they measure up.”
“CN is fulfilling its obligations about 80 per cent of the time and CP is at a dismal 60 to 62 per cent, even with all the other commodities down,” he said. “A lot more work needs to be done.”
Service problems were “a question of engines and crews.” Shippers should have the ability to impose service failure penalties on the railways, he said.
NDP MP Linda Duncan chided the Liberals and Conservatives for not making the measures permanent.
“Why are we making the farmers go through this again, waiting right to when it is about to expire, and then only to get another year? For this coming year, Canadian grains and pulses will potentially reach markets in a timely manner,” she said. “This is critical to provide expanded options for producers to access markets, thereby making grain sales more competitive. However, as grain producers have advised, they require longer-term solutions than just a one-year extension.”