Western Canadian farmers and grain companies have a new supporter for their argument that the railways have too much market power — Prime Minister Stephen Harper, no less.
A year after the Canadian cabinet in an unprecedented move passed an order-in-council requiring Canadian National (CN) and Canadian Pacific (CP) railways to ship a weekly minimum volume of grain or be fined up to $100,000 a day, Stephen Harper says government intervention is justified.
“But we understand, and it’s important that everyone who’s looking at this system understands, that this is an unusual situation where in the marketplace you have two large suppliers — the two big railway companies — where they have extraordinary market power,” Harper told the Saskatchewan Association of Rural Municipalities’ annual meeting in Saskatoon last week.
“And we simply cannot accept outcomes where those two big companies would dictate to the market just what they think is satisfactory in their interests. That is not going to serve the wider interests of grain farmers or of the Canadian economy.”
Farmers and grain shippers couldn’t be happier.
“He gets it,” Dan Mazier, president of the Keystone Agricultural Producers (KAP) said in an interview. “That’s what we’ve been asking for. We need regulations to mimic competition where it doesn’t exist.”
Harper is right, Western Grain Elevator Association (WGEA) executive director Wade Sobkowich said in a statement.
“It stands to reason that the extraordinary railway market power must be counterbalanced with legislative solutions, which we are optimistic the government will introduce after the CTA (Canadian Transportation Act) review process has been completed,” he said.
CN and CP opposed the order and say it doesn’t need to be renewed when it expires March 28 .
“The grain supply is now fully back in sync,” CN spokesman Mark Hallman said in an email. “CN today is efficiently responding to the demand… and is on pace to deliver another banner year for western Canadian grain.”
CN and CP say government regulation impedes efficiency.
Agriculture Minister Gerry Ritz initially defended the railways saying they were doing a reasonable job moving a record crop. But his position changed as the grain car backlog continued to grow. Last March the government issued its first order-in-council.
“You’ve all heard of back-to-work legislation, this will be get-to-work legislation,” Ritz declared at a news conference with Transport Minister Lisa Raitt in Winnipeg.
The order required the railways, in total, to ship at least one million tonnes of western grain a week until July 31, 2014.
Two more orders followed, with the current one set to expire March 28.
The government has not said if it will renew the order, but in an email Ritz said the government is still concerned and watching, though the system is not as strained as last year.
Both railways issued statements last week saying they’re shipping more grain than ordered and the order isn’t needed.
While most farm groups and grain shippers supported the original order, the WGEA isn’t advocating one way or the other on renewal.
“We’re saying if they are going to renew it there are some problems with it that need to be fixed,” Sobkowich said in an interview. “If they aren’t going to renew it then we need to know that the government is thinking about what is eventually going to replace it in a very meaningful and substantial way.”
An order-in-council is a tool to be kept at the ready, Mazier said.
“Don’t put it in the cupboard just in case…”
The original order was necessary, Sobkowich and Mazier agree.
“It was the right thing to do,” because it got grain moving again, Sobkowich said.
But both agreed there were “unintended consequences.” To ensure they met the order, the railways focused on loading and unloading grain where it could be done the fastest, resulting in inequitable delivery opportunities and certain customers not getting service.
“Given the circumstances I don’t think the government had any other choice but to do what they did,” said Mark Hemmes of Quorum Corporation, the firm hired by the federal government to monitor western grain transportation. “Practically and politically they had to do this.”
The railways shipped 34.8 million tonnes in 2013-14 — the most since 1990 when Quorum began monitoring — but there’s no way to know if it was due to the order or a coincidence, he added.
What’s clear though is the bad blood between the railways and grain companies.
“The acrimony — we’ve got to find a way to clear that away,” Hemmes said.
It won’t be easy. The railways and shippers continue to argue over system performance. Shipping has improved, but grain transportation is not fixed, Mazier said pointing to the 11 per cent shortfall in car orders so far this crop year, according to data collected from shippers through the Ag Transportation Coalition.
“That level of service is just pathetic,” he said.
The railways dispute the figures. CN says car orders are only a day or two behind.
Both KAP and the WGEA are counting on the CTA review to give them what they want — regulations that force the railways to agree to provide grain shippers with a specified level of service backed by penalties if they don’t. The grain sector hopes the prime minister’s words are followed by action.