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Pay More For Better Rail Service On Higher-Value Crops?

The following are edited excerpts from a Commons agriculture committee hearing Dec. 9 on railway service.

Randy Hoback, Conservative MP for Prince Albert:“The argument a lot of people are struggling with is cost versus service. (T)hey are intertwined.

If you buy something at a discount store you don’t expect to get proper service or extreme service.

If you’re shipping a low-dollar, high-volume product you don’t really care about service, you just basically want to see it get to where you want it to… because you have so much volume going through the system it doesn’t matter. (W)ith a specialty lentil… that service becomes a huge issue because you’ve got a key customer that you’re connected with that’s expecting that product.

Humphrey, you talked about this canola you have on the ground. That’s costing you a pile of money sitting on the ground is it not?

Humphrey Bannock, vice-president, Canadian Federation of Agriculture:Yes, our operation has suffered huge losses with this. (T)his canola is contracted and priced on September delivery. I should’ve had money in my pockets in September.

Hoback:So in that case then you’d probably give up 10 cents a bushel (in extra freight costs) to get the service would you not?

Bannock:I guess there’s always that balance and that’s where we’re looking – that simple balance whether there’s a costing review or service review or wherever we are.

Hoback:(I)f that canola does not move it doesn’t matter what the price per bushel for that canola is, it’s gone.

I guess that’s why I look at the service side of things as being very, very important because if you get the service right you can offset a lot of costs. (Y)ou used a number Greg (Cherewyk of Pulse Canada) of $11 and something a tonne is the cost of poor service. (I)f I put that back in my farm… that’s $12,000 or $15,000 roughly.

You multiply that across the system. Now you compare that to what the wheat board’s saying (farmers paying) about $6 a tonne (too much on rail freight), well that’s a smaller number.

(W)heat board grains you’d look at them and say they’re lower-priced products (than) canola, lentils or peas. So what’s more important… to get the lentils and the peas and the canola to market or the wheat because reality is the wheat has become a byproduct. Farmers are growing wheat basically because of rotation.

So where to do we concentrate? Is it to get a low quality of service product moved to market or is it to get the high value, high goods to market on time and the premium for being able to deliver in a proper fashion?

Canadian Wheat Board chair Allen Oberg:This whole idea that if you pay higher (rail) freight rates that you’ll get better service is erroneous. We’ve got 10 years of history to prove that. Freight rates have increased the last 10 years. Has service gotten any better? Absolutely not. And this idea that you’re suggesting that if you’ve got a higher-value product that you should have a higher freight rate, I don’t think farmers are going to buy that.

Hoback:Actually I’m not suggesting that. I’m suggesting farmers with a higher-value product might be willing to pay a higher freight rate because they’re more tied to the market and getting a reaction to get that premium. They might say, “I’m willing to pay that 10 cents a pound more because I’m going to get more money on that product.”

Oberg:But as history has shown because you have higher freight rates doesn’t mean you get improved service.

Hoback:OK. That’s fair.

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