Proposed changes to the Crow freight rate dominated news that month, with delegates to the Canadian Federation of Agriculture annual meeting rejecting an acreage-based subsidy in favour of paying it to railways so that it would cover mainly export grain. However, delegates from the Manitoba Farm Bureau and United Grain Growers dissented. There were opposite opinions on another issue — UGG president Ted Allen moved a resolution calling for an elected board of directors for the wheat board, but Saskatchewan Wheat Pool representatives were opposed. The resolution passed, however.

The world grain price slump continued, and the latest U.S. response was a Payment-in-Kind (PIK) program which would provide U.S. farmers with surplus government-held stocks in exchange for reducing acreage. The program was later criticized for high cost — estimated at $10 billion — but it had a significant effect on reducing supplies and raising prices, especially for corn.

Low grain prices were affecting machinery sales — U.S. officials were reported as predicting the lowest sales in 20 years. The low prices also had provincial crop specialists worried that farmers would practise false economy and reduce herbicide use. “Avoiding the use of herbicides to minimize production costs is a mistake,” said a Manitoba Agriculture release.

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Delegates avoided a contentious discussion on whether to pay the Crow benefit to railways or to producers, instead, calling on the federal government to resolve the issue.

Up for discussion at Advisory Committee meetings that winter was a proposal for a change in the CWB’s quota system, which would remove some summerfallow acreage from the quota base. The change would have added to the base for more than 50 per cent of producers in Manitoba, where there was less summerfallow than in Saskatchewan. The change was never implemented, with the CWB instead moving to a contract system rather than an acreage-based quota system.

The 1981 grain crop in the Soviet Union was estimated to have dropped to 175 million tonnes, 60 million less than the previous year, creating the need to slaughter livestock because of low feed supplies. Port and transport restrictions were expected to limit imports to 43 million tonnes for the year. Today those facilities are moving grain in the opposite direction, with Russia, Kazakhstan and Ukraine expected to export 104 million tonnes of wheat and coarse grains this year.

Despite high interest rates, Manitoba farmland sales had been brisk in 1980-81, with about a million acres changing hands for an average of $330 per acre, $39 higher than in 1979-80.

In livestock news, the U.S. lowered the tariff rate on Canadian “portion control” beef cut imports from 10 per cent to four per cent.

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Some producers hoped for an increase in wheat board quotas before the rate went up in January, but chief commissioner Esmond Jarvis said that could be difficult due to expected congestion.

At a meeting of the Manitoba Farm Business Association in Carman, panellists warned against production of Solar and Era, two U.S. semi-dwarf wheat varieties, citing the danger of them being mixed with CWRS. Some encouraged producers wanting to grow higher-yielding varieties to wait for HY-320, which could be licensed within two years.

At a meeting in Portage la Prairie, Manitoba pulse growers agreed to form an association and to join with two sister groups to form a Prairie organization. Membership would be $25 for individuals and $50 for companies.

In livestock news, special meetings were being considered to educate producers on correct procedures for finishing cattle. The Manitoba Beef Commission reported that about one per cent of the 1,500 to 2,000 cattle it marketed each week were being turned back because they weren’t suitable for slaughter.

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The debate was against a background of a difficult time for farm income — we reported that month that an FCC fund of $150 million established for farmers in “grave financial difficulties” that year had been oversubscribed in the first two months.

Meanwhile, despite $850 million available in the Western Grain Stabilization Administration, a payout for 1983 was in question. WGSA payments were triggered when cash flow from grain sales fell below the five-year average, but this remained high because deliveries were much higher than the previous year.

Canadian Wheat Board Advisory Committee chair Roy Atkinson defended the CWB against criticism that it was not making enough use of Churchill. He rejected requests from CWB Minister Hazen Argue that the board guarantee minimum annual shipments before the government spent $50 million on upgrading the rail line. Atkinson said it was “an attempt to transfer responsibility for the port’s welfare to western grain producers, rather than to the country as a whole, where it belongs.”

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In other subsidy news, Manitoba hog producers were considering a lawsuit claiming up to $50 million against other provinces for losses caused by their subsidy programs.

The overseas grain export subsidy war continued — the U.S. sharply increased its Export Enhancement Program (EEP) subsidies the previous week, allowing the Soviet Union to buy wheat at $132.50 per tonne ($3.60/bu.) with a subsidy of $31.53.

Seeding was reported to be underway, with about five per cent of cereals seeded around Melita.

At a special ceremony, Manitoba Crop Insurance celebrated its 30th anniversary, and special licence plates were issued to 211 producers who had been in the program since its inception.

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The Crow rate issue was still bubbling away that month — Transport Minister Jean-Luc Pepin had expressed his “personal opinion” that it should change, while Wheat Board Minister Hazen Argue expressed his “personal opinion” that it should not.

Also differing were opinions on car allocation for rapeseed, and whether grain companies should receive cars based on their export sales or receipts in the country.

That week we reported that the USDA was estimating a record world grain crop, but that was not due to production in the Soviet Union. Its harvest was forecast at a dismal 170 million tonnes, nine million below the previous year. Our editor correctly speculated the Soviets would soon be in the market for large amounts.

After what was apparently a mutual understanding between Canadian and New Zealand producers, Agriculture Minister Eugene Whelan had announced that imports of New Zealand lamb would be suspended until Easter, 1982 in order not to disrupt the Canadian market.

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High interest rates were a major concern, and we reported that Premier Sterling Lyon was concerned about the Bank of Canada’s new floating interest rate policy. The bank rate at the time was 14 per cent. High interest rates had discouraged farmers from early fertilizer bookings, and we reported concern about tight supplies and prices 10 to 20 per cent higher than a year earlier.

CN Rail president Ron Lawless said he was encouraged by momentum to change the Crow Rate, but warned that buying more cars was not the solution to the grain transportation problem, and that improvements were needed in terminal facilities.

In our March 27 issue, we reported on the earliest-ever opening of the St. Lawrence Seaway, and that flooding was unlikely on the Red and Assiniboine rivers. This turned out to be a precursor for a hot and dry year — Manitoba average wheat yields that year dropped to 21 bushels per acre compared to a previous five-year average of 33.

A story from the U.K. said that the Agricultural Research Council was co-ordinating a $1.25-million-per-year program to make genetic engineering of plants a reality, “a project which would have been considered in the realm of science fiction only a few years ago.”

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This follows the speech from the throne, in which we were told the government would defend citizens against those evil cable providers. Isn’t it nice to know that a “conservative” government that preaches the virtues of free markets and staying out of citizens’ business will pass an act of Parliament to let you subscribe to the Space channel without having to pay the full three bucks a month to get Spike, History and Bravo as well? And then use your tax money to tell you about it?

If you were a grain farmer watching the Grey Cup, it might have occurred to you that it seems odd that the Harper government has one attitude toward competition in the cellphone business, but another toward the railways.

Speaking to the Grain Industry Symposium in Ottawa last month, Agriculture Minister Gerry Ritz said he hasn’t seen any evidence that the railways aren’t performing. Apparently the grain companies reporting a weekly shortfall of between 1,000 to 2,000 cars isn’t evidence.

However, “I’ve asked (the grain companies) to keep me up to speed on what’s working, what’s not working, so I can flow it through to Transport Canada and directly to the railways to make sure they understand that we are watching.”

The reference to flowing through Transport Canada directly to the railways is particularly telling. Mr. Ritz may not be aware that in certain quarters, the joke is that Transport Canada is otherwise known as the railways’ unofficial lobbying office in Ottawa.

The minister is also a fan of removing the revenue cap on grain shipments, which would be the railways’ final victory in a long-running campaign to get absolutely everything their way. Perhaps it’s ancient history now, but some of us remember when the railways hinted if not outright promised that if the government got rid of the Crow rate, they might be able to afford to improve service. The railways also said they could improve efficiency by getting rid of all those old wooden elevators and all those branch lines.

So let’s go back to 1983-84, when there were 3,000 elevators, not 300, and most of the cars were boxes, not hoppers. In the final week of that year, Thunder Bay took off 9,672 cars, and Vancouver unloaded 3,000-plus. Back then, 5,000 unloads would have been a disaster. Today it’s considered a good week.

So the railways got what they wanted. The Crow is gone. The boxcars are gone. The branch lines are gone. The wooden elevators are gone. The wheat board is gone. But the railways are shipping half as many cars as they did 30 years ago. Their solution to improve things — and one apparently shared by Minister Ritz — is to get rid of the revenue cap so they can charge even more.

Did we mention that the revenue cap is set at a level to guarantee a profit, and is adjusted for inflation?

The theory behind this, by the way, is that by allowing the railways to charge more in total, they could raise rates at some points to encourage more efficiency in the system. When there are four elevators in Western Canada — one per railway at the foothills of the Rockies and at the Manitoba-Ontario border — perhaps the system will be sufficiently efficient from the railways’ point of view.

The wholesale deregulation of the system over the past 30 years was marked by a number of reports, many prepared with helpful support from the railways’ lobby office in Ottawa… er, Transport Canada. One of the last, by retired Supreme Court Justice Willard Estey, supported continued deregulation. However, it’s somehow been forgotten that he also made another recommendation to encourage competition, which was that the rail system be deregulated in the same way as telecommunications, and that there be joint running rights. In other words, anyone could start a railway and run it on CN and CP tracks.

Well, that didn’t happen, but the current government ad campaign tells us that it wants at least four cellphone companies competing in every region of the country — and sharing cell towers.

In kowtowing to the railways, the Harper government is only carrying a tradition followed by previous Liberal and Progressive Conservative governments. But never have we seen such a stark ideological contrast. You must have the choice of four cell companies, but two railways are enough.

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In contrast, rail’s air, trucking and marine competitors have an advantage from the outset in not having to build or maintain infrastructure.

And while rail can withstand underinvestment for years, eventually a lack of capital catches up and is reflected in lagging capacity and productivity. One significant reason behind railway underperformance is regulation and the reluctance of capital to invest in unnecessarily regulated industries.

Deregulation attracts capital

The Conference Board of Canada, which traced the relationship between regulation, investment and productivity in railways, found that, whereas regulation results in investment decisions being deferred and productivity negatively affected, deregulation has the opposite effect — attracting capital and increasing productivity.

For example, during the highly regulated years of the Western Grain Transportation Act (WGTA) (1983-96), capital investment in Canadian railways suffered. By contrast, the 1996 Canada Transportation Act created a regulatory climate that encouraged new investment, resulting in the doubling of capital expenditures over a two-year period.

At different points in their history overregulation has brought Canadian and U.S. railways to the brink of ruin. However, the two countries have dealt with their crisis differently.

The U.S. Congress deregulated the rail industry in one fell swoop with the 1980 Rail Staggers Act. Although the Canadian government — in light of urgent findings tying the rate to a financial crisis with Canada’s railways — committed in the 1980s to dealing with the 1897 Crow’s Nest grain rates, it ultimately refused to deregulate.

Not only did the Crow’s Nest rate affect the railways and the Canadian economy, it also stalled grain industry advances and undermined Canada’s unique status as world leader on the grain portfolio. The 1983 WGTA replaced the Crow’s Nest rate, but continued the preferential treatment of grain transportation.

At heart, the WGTA allowed the railways to earn money for three years with productivity gains clawed back in year four — hardly enough to encourage capital investment in rail. The act also resulted in the excessive transportation of grain, in lowering grain prices in eastern Manitoba and Saskatchewan, in encouraging export grain production and in discouraging value-added processing and crop diversification.

The WGTA was replaced in 1996 with a maximum rate scale on grain transportation. In his 1998 report Grain Handling and Transportation Review, Final Report, Justice Willard Estey found the rate scale to be mileage oriented and insensitive to the true cost of transportation, discriminating against shipments to the Port of Prince Rupert.

Despite the Estey recommendation, that the rate scale be repealed and that Canada move to a commercial system, the Chrétien government opted instead for a cap on rail’s grain revenue and a penalty to railway earnings in excess of an amount established annually by the Canadian Transportation Agency. Although the government claimed the cap would replicate market conditions, the revenue cap abandons market practices such as price signals and shareholder return.

The Conference Board of Canada questioned the government’s commitment to a market-driven system in light of Ottawa clawing back $178 million from railway revenue at the outset of the cap regime. This, and the 2008 clawback of another $72.2 million, are the antithesis of a market-based system.

With regulation increasing risk for capital investment, the Conference Board of Canada criticized the special legislation governing grain. It found regulation favouring one commodity to be unique among similar industries and to contradict business discipline that emphasizes price signals and market forces.

Lacks common sense

Given these impacts, it is worth considering whether the revenue cap is smart regulation. The revenue cap applies only to grain and within that commodity only to some grains, only to some railways, only to some ports, and only to movements west of Thunder Bay. To conform to a 2004 WTO ruling, U.S. grain moves through Canada under the revenue cap. With elevators, ports, trucking and marine providers moving the same grain without a cap on revenue, the common sense behind the regulation is lost.

Grain politics has been part of the history of this country. While the preferential treatment of grain may have advanced a nascent grain industry, that era is long gone. By eliminating the special treatment of grain, the federal government can eliminate barriers to investment, boost railway productivity and enhance the movement of goods in Canada.

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Agency ruled Dec. 31 that Canadian National Railway (CN) earned too much money from hauling grain in the 2008-09 crop year and ordered it to hand over more than $700,000.

Canadian Pacific Railway (CPR), meanwhile, did not exceed the government’s grain revenue cap, the CTA said.CN’s

grain revenue of $479,788,412 was $683,269, or 0.1 per cent, above its revenue cap, according to the agency. CPR’s grain revenue of $484,806,288 came in below its cap.CNnow has 30 days to

pay the amount of excess revenue plus a five per cent penalty, the agency said. The government requires such payments to go to the Western Grains Research Foundation’s endowment fund.CNis reviewing the CTA’s

calculations, said company spokesman Kevin Franchuk. A year ago, the agency also found CN had exceeded its grain revenue cap for the 2007-08 year, a decision CN appealed.

That appeal is still before the courts, Franchuk said.

Canada’s 2008-09 crops were large and the government boosted the railways’ combined revenue cap by $208 million.

The Canadian government implemented the grain revenue cap in the 1990s after it eliminated the Crow rate subsidy for grain movement by rail. The cap applies to revenue the railways earn by moving grain from the Prairies to ports.

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