Canada’s two major railways once again tipped over the statutory cap revenues for shipping grain during the 2011-12 crop year — costing farmers an extra two cents per tonne.
“It underscores again the need for a costing review to parallel the (rail) service review,” Bladworth Sask., farmer and agricultural economist Ian McCreary said in an interview.
For the first time last crop year, Canadian National (CN) and Canadian Pacific railways (CPR) were allowed to collectively earn more than $1 billion shipping western grain — $542.5 million for CN and $494 million for CP. However, CN and CP exceeded the cap by $240,185 and $400,132, respectively.
The overage of just 0.1 per cent cost farmers, on average, an extra two cents a tonne. Under the Canadian Transportation Act the railways must remit excess revenues, plus a five per cent penalty to the Western Grains Research Foundation, which benefits farmers through research.
CN and CP have until Jan. 30 to pay the foundation $212,194 and $420,138, respectively.
The revenue cap, established in 2000, is a form of “economic regulation” that gives the railways flexibility in setting rates while protecting farmers from overcharging. The cap is adjusted for volume so there’s no limit on how much grain the railways can move. It’s also adjusted for inflation reflecting increases in expenses such as fuel.
In 2011-12 the railways moved 33.1 million tonnes of Western grain, up 6.2 per cent from the previous crop year, the CTA said in a release. The average length of haul was 952 miles, down 13 miles, or 1.3 per cent.
The move to fewer, but faster-loading, high-throughput elevators and hauling more cars per train, has made the railways more efficient, McCreary said. Still, the average cost of grain shipping in 2011-12 was $31.36 a tonne, versus $25.85 in 2000-01.
“You’ve seen the rate structure go up by almost 18 per cent (when adjusted for hauling distance) in that decade for the two railways and farmers have received none of the efficiency savings,” McCreary said.
Two years ago a study conducted by Travecon Research for the Canadian Wheat Board and a number of farm groups concluded farmers were paying $100 million a year, or $6.97 a tonne, too much for grain shipping.
If the government won’t review rail costs, it needs to create competition between the railways, McCreary said. One way is to allow competing railways to operate on the tracks owned by CN and CP.
Last month the Canadian Federation of Agriculture and National Farmers Union renewed their calls to review railway costs after the government unveiled its railway service legislation.
The Western Canadian Wheat Growers Association also supports a review, said the association’s policy manager Blair Rutter. “We want to ensure farmers are paying freight rates that would be in line with what we would see in a competitive market,” he said.
Keystone Agricultural Producers’ (KAP) president Doug Chorney said while KAP supports a review, he’s concerned a costing review could result in higher rail freight costs for farmers. The railways already make more money shipping other commodities than grain, he added.
“We better make sure we know what we’re asking for in a very defined way before we see government open this door for us,” he said. “We all know in the commercial world businesses will do the business that’s most profitable first.”
Western grain earns CN the least of all the commodities it hauls, confirmed CN spokeswoman Emily Hamer.
“Any regulatory reduction in our freight rates could jeopardize our ability for continued investment… in the supply chain for Western Canada,” she said in an interview. “Freight rates for grain transport (in Canada) are among the most competitive in the world.”
The WCWGA also worries about projections that Saskatchewan potash exports could quadruple in six years cutting into railway capacity.
With increased grain processing in the West and more access to American railways, rail transportation might become more competitive over time eliminating the need for a revenue cap. But in the meantime, it needs to be reviewed periodically to be sure farmers aren’t overpaying, Rutter said. It’s akin to the Public Utilities Board assessing Hydro rates, he said.
The Grain Growers of Canada is focused on service.
“Our position right from the start has been no costing review until such time as we get the service review done,” said executive director Richard Phillips.
CPR spokesman Ed Greenberg said he couldn’t comment on a costing review. Much of CPR’s grain earnings are reinvested to improve grain service, he said.