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Rail regulation vital to grain farmers

Temporary measures should be extended beyond next August because they’re forcing railways to be more competitive

Prairie farmers pay the price when the railways fail to move their grain on time.

That was the message farm leaders had too, to the Commons transport committee recently, as part of a pitch to extend temporary competition provisions introduced in 2014 beyond next August 1.

“In the 2014-15 year Canadian farmers paid $1.4 billion in freight charges to export their grain,” said Humphrey Banack, vice-president of the Canadian Federation of Agriculture. Farmers, not the grain companies, always seem to be where the buck stops, he said.

“They pay all the freight for moving the grain,” Banack said. “They pay for disruptions. They pay for delays. They even pay the penalties charged by shipping companies when their vessels have to wait in port for demurrage.

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Loading Harvested Wheat Into Truck, Alberta, Canada

“Our livelihood and even our monthly cash flow depend on the timely, dedicated and concentrated efforts of the two railway companies that basically have a monopoly,” added Banack, who left his Alberta farm in mid-harvest to speak to the committee.

“Farmers’ ability to manage their grain movement — and by extension their cash flow and their ability to pay their bills on time — is captive to a monopolized transportation system that is focused solely on cutting costs and maximizing returns.”

He urged the government to continue to mandate the volumes of grain needed to be moved at any given time.

“The success of the Canadian grains and oilseeds industry is contingent on finding international markets, providing a competitive price for those markets and getting the product to the market in a timely fashion,” Banack said. “All those conditions cannot be left to the vagaries of the railways… because farmers have no alternatives for access to export markets and because farmers need competitive freight rates, volumes of grain need to be moved in a timely manner especially during times of bumper crop conditions and high demand in the international markets.”

Fiona Cook, executive director of Grain Growers of Canada, said the group wants the current 160-kilometre interswitching rule made permanent because its presence gives farmers and grain companies important leverage with the railways.

“The rule has already made for more competitive freight rates and service, and has directly benefited farmers,” she said. “Not only have farmers noted reduced costs, they have also gained more leverage in getting rail capacity where needed.”

Some elevators have “operationalized” the interchange right by applying for an ongoing interswitching rate, while others have used it as a leverage, to negotiate with railways.

“The mere existence of the option can provide shippers with the necessary leverage to obtain better terms and conditions, and shippers report that after using interswitching and the alternate line to move shipments, the originating carrier has then come forward to offer better rates and service terms,” Cook said.

“Extending the radius to 160 kilometres better reflects the large expanse of the Prairies and the nature of grain transportation in Western Canada. The original 30-kilometre radius was intended for urban centres and moving product at port. It encompassed very few grain-loading facilities: six per cent had access at 30 kilometres. Now at 160 km, 92 per cent have access.”

She said that for the previous crop year up to May 20, 2016, “interswitching resulted in savings of almost $4 million and almost 1,300 additional rail cars put into service.”

Jean-Marc Ruest, vice-chair of Cereals Canada, said that organization also supported making the 160-kilometre interswitching rule permanent.

“This provision is proving to be an effective tool to provide additional competition between the two Canadian Class 1 railways, as well as with at least one other North American carrier,” he said. “Its very existence provides eligible grain shippers an extremely useful competitive tool to access in negotiations with rail service providers.”

Federal grain transport volume minimums “should be extended until legislation is enacted that will introduce true commercial accountability to all system participants,” he added. Better regulation of the railways is critical if Canada is to meet growing demand and maintain a reputation as a reliable supplier. Failure to perform a regulator framework will negatively impact the entire value chain including farmers, grain handlers, and exporters.

“Virtually all shippers are served by one carrier and are subject to monopolistic pricing and service strategies,” he said. “Therefore, the government has a critical role to play in establishing a regulatory structure that mimics a competitive environment.”

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