Western Canadian grain farmers will continue to get a lot less than the world price, even if the railways improve their service, the House of Commons agriculture committee was told April 2.
That’s because almost all of the West’s grain wants to be exported through the West Coast where prices are highest, but can’t because Vancouver and Prince Rupert can only handle 22 million tonnes a year, University of Saskatchewan agricultural economist Richard Gray and former Canadian Wheat Board director Ian McCreary said in separate presentations.
The committee is reviewing Bill C-30, the Fair Rail for Grain Farmers Act, designed to improve rail service for grain and tackle the current backlog in grain shipments.
Gray estimates if the West Coast could handle all Western Canada’s grain exports it would save farmers $800 million a year in reduced basis (difference between country and port prices) and eastern grain-shipping costs.
Because ocean freight rates are currently low, Canada can export grain from as far east as Brandon, Man. from the West Coast to Europe and Africa via the Panama Canal.
“If (grain) production stays at average to above-average levels this new ‘grain robbery,’ as it’s being seen on the Prairies, will be there for the foreseeable future,” McCreary told the committee. “Alternatively stated current international prices are very strong and western Canadian farmers are the only ones not to gain from this strong market.”
McCreary, a former wheat board analyst who now farms at Bladworth, Sask., said his wheat is worth $170 a tonne more in Vancouver than at his local elevator. Since it costs grain companies $70 a tonne to get the grain to Vancouver the companies are making an extra $100 a tonne, he said.
“That’s a $4.8-billion transfer from farmers to grain companies,” McCreary said. “That’s not a very attractive solution. So we need to be a bit more creative in finding that solution.”
Grain not moving
The Western Grain Elevator Association denies it’s reaping windfall profits due to the wide basis. Spokesman Wade Sobkowich said in an interview the basis is wide to discourage farmers from delivering grain because elevators are plugged. As a result little grain is moving and much of what is, was sold at higher prices. Moreover, grain companies are facing higher costs related to the grain backlog, including demurrage, contract penalties and lost sales.
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In the past when grain crops were big, the Canadian Wheat Board prevented the basis from getting as wide as it is now, McCreary said. The board would inform the railways how much grain the West was likely to ship, calculate how much would move through the West Coast, through Thunder Bay and to the United States and then get farmers to store the surplus.
Since the wheat board is gone, it makes sense to set up another agency, perhaps modelled after the old Grain Transportation Agency (GTA), to co-ordinate grain transportation, McCreary said. A new GTA can’t force farmers to store grain but it could establish how much grain is expected to move and allocate export capacity so users get their fair share of a limited resource, he said.
Pierre Lemieux, the parliamentary secretary to the minister of agriculture, rejected the idea, saying it was too bureaucratic.
Barley Council of Canada chair Brian Otto agreed, saying if all players in the grain industry met they could work out a commercially based system.
Liberal MP Wayne Easter disagreed. “Simply put, if this system was working under the theory you’re talking about, we certainly wouldn’t need this legislation today,” he said. “History has shown you do need some kind of GTA to have the authority to make the system work as you would like it to.”
Gray suggested at very least a new GTA could allocate cars where there is a backlog.
“We’ve got a bunch of contracts that are overdue and it’s up to the railways that ship grain where and that’s not working very well,” he said.
Both Gray and McCreary said the cap on total grain revenues should remain, but suggested exploring compensating railways more during the winter when operating costs are higher.
Gray said railway grain-shipping costs should also be reviewed. The grain-handling and transportation system is much more efficient now than the last review was done in 1992.
“Without long-term planning, basis levels will remain high, stifling farm income and national economic growth,” Gray warned.
“Frankly, other than a short crop there’s not a lot of short-run solutions other than use the resources we have now the best we can.”
Increasing cash advances and subsidizing grain storage are options the government could consider, Gray said.