The $10-billion ‘problem’ Canada likes to have

Last year’s record crop is a sign of bigger things to come, industry leaders say

Last year’s record 75-million-tonne crop highlights the need for investments in expanded grain-handling capacity, industry leaders told the Canadian Global Crop Symposium April 15 in Winnipeg.

“That means we’re going to have to invest… in new capacity,” said Curt Vossen, president and CEO of Richardson International. “And we’re going to have to invest, whether we think it’s commercially appropriate or not, in redundant capacity because when problems occur you need recovery. If you don’t… you just fall behind… and you lose it forever.”

Western Canada’s 2013 crop shattered the previous record set in 2009 by 28 per cent higher and is 50 per cent above the average. It took the grain industry off guard, especially the railways, which fell behind delivering cars to country elevators this winter.

Grain companies and farmers blame the backlog on the railways’ cutting crews and trains to boost profits, knowing they wouldn’t lose grain traffic because there are few economic alternatives.

The railways blamed the shortfall partly on an unusually cold winter, but also on the big crop itself. But rather than complain, the grain industry should be shouting “hallelujah,” Vossen said later in an interview.

“We’ve got to stop talking about a 75-million-tonne crop as a problem.”

The need to increase Western Canada’s grain-handling capacity was raised throughout the day-and-a-half-long meeting. Grain companies are investing (see sidebar) but frustrated farmers didn’t hear what the railways are planning, other than promises to move the crop.

Farmers and grain company executives declared 2013 was no fluke.

“This is the new normal, as opposed to 45-million- to 50-million-tonne crops,” Vossen told the symposium.

New technology bred into seeds and agronomic improvements are boosting crop production, he said.

“Could it go to 90 million tonnes? Maybe,” Vossen said in an interview.

The extra 25 million tonnes produced last year will earn Canada $10 billion, he added.

“And it’s replaceable. And it’s sustainable.”

Meanwhile, the canola industry is pushing to boost average canola yields to 52 bushels an acre, producing 26 million tonnes by 2025.

The canola industry isn’t striving for “past goals” or “averages,” Canola Council of Canada chair Terry Youzwa said, alluding to the railways, which measure their performance to previous peaks or averages.

Corn breeders are developing earlier-maturing varieties, which could see acres expand across the West. Corn yields more than other crops so the system will have to handle more tonnes.

“Our belief is, to only use long-term (yield) trends is not going to position ourselves for success in the future,” Cargill Canada president Jeff Vassart told the meeting.

J.J. Ruest, CN Rail’s executive vice-president and chief marketing officer, didn’t announce any track-twinning projects, much to Youzwa’s disappointment.

“Maintenance is capacity,” Ruest told Youzwa.

CN is spending more than $2 billion in capital projects in 2014 — half of it on maintenance, he said.

“If the network is not in good shape, it doesn’t matter how many cars you put on it, it won’t be as fluid,” Ruest said.

From every dollar of revenue, CN spends 19 to 20 cents on maintenance, he added.

The federal government has ordered the railways to move one million tonnes of grain a week and new legislation, if passed, will allow the government to set shipping targets for two years. But most in the grain industry agree commercial service-level agreements between shippers and the railways would be more effective.

The railways are reluctant to sign the agreements because grain freights are regulated by the maximum revenue entitlement, Ruest told Dave Sefton, chair of the Western Grains Research Foundation.

In a commercial negotiation the railways would agree to provide better service or more capacity for a higher price, Ruest said later in an interview.

“You are shackled (by the entitlement) in a way I don’t think was intended,” Ruest said later in an interview.

But most farm groups and the Western Grain Elevator Association say the railways are fairly compensated to move grain and giving up the entitlement would see higher freight costs with no improvement in service.

Rail service must be balanced against the railways’ need to be efficient and vice versa, Scott Streiner, an assistant deputy minister with Transport Canada told the meeting.

Keystone Agricultural Producers president Doug Chorney told Streiner the railways haven’t suffered the way farmers and grain companies have because of the backlog.

“Surge capacity in the system is what we expect from everybody that serves the ag industry,” Chorney said. “The railways have been able to be the exception to that rule. That’s not acceptable. You say they should be efficient. No, they need to be successful and we want them to be profitable, but we don’t want them to be so efficient it’s penalizing everyone else in the value chain.”

Alberta Barley chair Matt Sawyer said the grain backlog is “an epic failure” that has cost farmers $3 billion.

Nick Sekulic, chair of Pulse Canada and Rycroft, Alta. farmer, said in an interview the only reason farmers aren’t suffering more is that they’ve had a couple of good years and lenders are providing credit.

“On my farm, it’s a six-digit impact, this crisis,” he said. “If we have another big crop it could be a seven-digit impact on my bottom line. These are things that should get the attention of everyone in Canada because it’s going to affect our economy, our standard of living and our dollar.”

Ruest said CN will move the 5,500 cars a week the government has ordered, but it and the rest of the grain sector must work flat out, seven days a week, 24 hours a day this spring and summer.

Normally grain shipping slows this time of year as farmers focus on seeding and the railways and terminals do maintenance, he said.

“At some point we need to bring the temperature down and get back to basics of operating and how we railroad together,” he said.

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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