“We’ll have an active program on durum wheat and lentils going into the Mediterranean,” said Al-Katib, who’s also CEO of Regina-based AGT Foods, one of the group’s major partners.

There will be four vessels coming to Churchill this season, the same number as last year, he said. In 2019, about 137,000 tonnes of durum and lentils past through the port, which marked the first grain shipments in four years, according to the Hudson Bay Route Association.

Al-Katib said work is being carried out to stabilize the track bed. When under the ownership of Omnitrax, there were a number of washouts along the route that cut Churchill’s only land link. It wasn’t until the Arctic Gateway Group acquired the line and the port, that the link was re-established.

“We remain very optimistic that when we go forward into 2021 and beyond, that Churchill can start to get back into that eight- to 10-vessel range,” Al-Katib said, noting the group is working with the federal and provincial government to achieve that goal.

Shipments of grain through Churchill began to drop after 640,000 tonnes in 2013. The following year saw a 17.1 per cent decline, followed by a 65.2 per cent dive in 2015 before ending altogether due to the washouts.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Also, he said, those Canadian exporters must realize they need to switch from being solely dependent on commodities to adding value by shipping food and ingredients.

“We need to accept the reality that these tariffs are there and they are not going away,” said Al-Katib, the CEO of AGT Food and Ingredients, at the recent Grain World conference in Saskatoon.

India’s import tariff on peas is at 50 per cent and chickpeas at 44. Lentils are at 33 per cent, except those from the U.S., which are levied at 50, he said.

“Put it in place, reduce it, continue to collect billions of dollars and protect your domestic agriculture all at the same time. That’s the new reality,” Al-Katib said during his presentation Thursday.

Changes in those tariffs will inevitably be made by the Indian government, in accordance to how well the country’s domestic crops are doing. The better the crop, the higher those tariffs will remain, he explained.

After back-to-back years of good crops for India, Al-Katib said 2020 will likely be quite different due to the timing of the monsoons this year, as the season lasted much longer than normal.

“Up to 60 per cent of the October-November harvest was damaged,” he said, adding the extended rains also meant the planting of the next crops was late.

“The March-April harvest is the key harvest for Canada. That’s when [India] harvests lentils, chickpeas and pigeon peas,” Al-Katib commented.

Should there be a poor crop, the India government is likely to reduce its tariffs on pulses.

Also, Al-Katib doesn’t want Canada to remain an exporter of only commodities. He said India views Canada as another country that dumps its pulses on it.

“We have the opportunity to produce food, not just commodities, but getting out of the ‘commodities ghetto’ where we have no control,” he said.

The Indian market alone, he said, has about 400 million vegetarians with another 700 million people who also consume a tremendous amount of vegetable-based protein.

Furthermore, Al-Katib said Canada shouldn’t be just focused on India, but the entire Asian market as the continent’s ballooning middle class is projected to be spending US$33 trillion a year by 2030.

“There’s enough of the pie to go around for everybody,” he said.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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AGT was delisted from the TSX earlier in 2019, as Al-Katib moved to take the company private after 12 years of being publicly traded. Its new ownership group is comprised of Fairfax Financial Holdings owning 60 per cent of the shares, AGT with 28 and Point North Capital, 12. Al-Katib said he’s the largest single shareholder running the company.

Also earlier this year, AGT opened a new rail consolidation centre at Delisle, Sask., southwest of Saskatoon.

“It’s what we consider to be the largest processing unit for grains, maybe in the country,” Al-Katib said during his presentation Thursday.

All of AGT’s short-line rail traffic winds up in Delisle, where AGT has eight spurs of four kilometres each. The grain cleaning operation there can process a 10,000-tonne train in less than 12 hours, he explained.

“It cleans to less than 0.5 per cent foreign material,” Al-Katib said.

In adding up all of AGT’s rail lines, he said the company has become the third largest railway in Canada, behind only Canadian Pacific and Canadian National Railways.

The company’s Churchill port facility was put back into operation, a year after it and the rail line were acquired from its previous owners. Al-Katib said approximately 150,000 tonnes of grains were shipped through the port in 2019, with the goal 300,000 tonnes for 2020. In subsequent years, he wants Churchill’s capacity boosted to 500,000 tonnes per year.

“With icebreakers we can stretch Churchill’s shipping season from June to the end of November,” Al-Katib said.

Among the cargo vessels leaving the port were three loaded with durum and one with lentils, destined to the Port of Mersin in southern Turkey, a voyage that takes three weeks, he said.

The last of the four departed Churchill on Nov. 7, which Al-Katib said was very likely the latest a grain vessel left the northern Manitoba port.

“That was the day we were told if we didn’t pull out by three o’clock, we might not make the ice in the strait. We left at 11 in the morning,” he said.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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The Feb. 11 court date in Toronto comes after AGT shareholders voted Tuesday at a special shareholders’ meeting in favour of privatization, according to a company news release.

Shareholders, representing a total of 74.8 per cent of AGT’s outstanding shares, voted 72.5 per cent in favour of the privatization with 27.5 per cent against, AGT said.

Following the court ruling, the company expects to be delisted from the TSX sometime during the first quarter or early in the second quarter. A company official declined to comment publicly on the privatization when contacted.

The buyer group has been led by AGT CEO Murad Al-Katib and includes other top AGT executives, plus Fairfax Financial Holdings and Point North Capital. As part of the group’s privatization plan, they will acquire all outstanding shares for $18 per share.

The group announced its intentions to take AGT private last July. Company shares that day leapt from $13.17 per share to $17.76, but by early December the price slipped to $15.84. The price fluctuated over the next couple of months and gained $1.56 this week alone, closing Friday at $17.86.

However, that price is a far cry from the $42.05 at which AGT traded in May 2016. AGT’s share values were hurt by India increasing its import duties on pulses. India had been Canada’s largest pulse customer.

Shareholders opposed to AGT’s privatization, led by the investment management firm Letko, Brosseau and Associates, have argued the company has been undervalued.

Letko Brosseau, which manages an 18.6 per cent stake in AGT, reiterated in a Jan. 29 statement that it would vote against the going-private deal.

AGT’s financial performance, Letko Brosseau said, has been “negatively impacted by industry factors and the proposed transaction comes during this time of weak performance and low share price.”

The investment firm said it “believe(s) these industry pressures will ease and expect(s) that the company’s financial performance should strengthen as industry conditions improve.”

Al-Katib started AGT under the SaskCan Pulse Trading banner in 2003. By 2009, it had evolved into Alliance Grain Traders, when the Alliance Grain Traders Income Fund became a publicly-traded corporation. Alliance then morphed into AGT Food and Ingredients in 2014.

— Glen Hallick writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting. Includes files from Ashley Robinson of MarketsFarm and Glacier FarmMedia Network staff.

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The president and CEO of Regina-based AGT Food and Ingredients delivered this message Nov. 14 as the keynote speaker at the 2018 edition of the Grain World conference in Winnipeg.

“When I was a kid I used to say we are the breadbasket of the world,” he said. “Wheat was the predominant crop in Davidson, Saskatchewan. That was something we could be very proud of. Cereals are still a massive part of our industry and continue to be, but now we’ve got a three-crop rotation. We’ve got the ability now in Saskatchewan with lentils, chickpeas and beans to complement the cereal rotation.”

Protein, he stressed, is now the key driver in the world agricultural market. He said he thinks Western Canada will be first on what he calls the “protein highway.”

“If we can successfully link that to the ‘silk road’ in Asia, I think we are going to be very, very successful,” Al-Katib said.

Along with that protein highway, he said, will be massive growth in the world’s population and in turn that will lead to a fundamental change in Canadian agriculture.

“The consumer Canada will serve 10, 20 years from now in agriculture is almost completely different than the consumer we are serving today,” he said. “The consumer today is based on the commodity nature of our agriculture economy. The consumer of the future is related to the $35 trillion in middle-class spending in Asia.”

To meet that huge demand Al-Katib said the world, over the coming years, will need to produce more food than it did in the previous 10,000 years. One avenue available is increasing plant-based protein consumption. With that in mind, he stated AGT is not ‘anti-meat’ as some in the agriculture industry have portrayed the company as being. Rather, Al-Katib noted there are tremendous opportunities for pork and beef producers as well in the coming years, but noted meat-based protein alone cannot meet the growing demand.

“It’s about looking at the environmental sustainability. It’s about looking at the overall consumer trends, I believe are irreversible trends. These are not ones that are here today and gone tomorrow. These are fundamental trends rooted in protein consumption, lower fat consumption and overall sustainability,” he said.

Al-Katib said the needed changes have already been developing in Canadian agriculture, such as the growth of lentil, chickpea and soybean production. Assisting that, he said, is the co-operation between players in the industry, such as AGT, with universities in undertaking research and development.

But Al-Katib said one cannot be confined to only science, and data analytics must be an integral part of taking a greater share of the emerging markets.

“We have to get our heads out of the sand in saying science is only all that matters. Unfortunately I’ve become unpopular with some scientists. Consumer behaviour and preferences govern my thinking,” Al-Katib said.

And to Al-Katib it is not only about how much of what crop Canada grows. Rather he stressed the value-added aspect pointed to the success there has been with canola in the production of canola oil.

One area Al-Katib does see as an impediment to growing Canada’s agriculture sector is government regulation. He cited a recent report from the Organization for Economic Co-operation and Development that pegged Canada 36th out of 75 countries when it came to regulatory competitiveness.

“The quantification was the regulatory system in our country is equivalent to an estimated seven to eight per cent tariff on small business. This is an unacceptable scenario. On a go-forward basis the regulatory system in this country needs to recognize that we don’t need regulatory chokeholds in order to protect public safety and public trust,” he said and called for the modernization of the regulatory system including the Canada Grains Act.

Another impediment Al-Katib pointed to was Canada’s lack of a 50-year infrastructure plan that shifts infrastructure from constantly being a political issue to becoming a national economic priority, such as was achieved in Australia. He said not only does Canada’s transportation system need to be improved, but also its communication system.

“Infrastructure also means fast, accessible broadband internet in the entire country. We should not be a country where if you want to be in business you have to move to a large city. As the agriculture sector wants to capitalize on a data analytics, we need modern, fast broadband. Government has to make that decision,” he said.

With the changes so far in agriculture Al-Katib has witnessed, he said the sector has evolved from being a drain on the country to becoming Canada’s top job creator. In citing 2015 statistics, agriculture accounted for 2.1 million jobs compared to 1.7 million jobs in manufacturing, one million jobs in education and 950,000 jobs in energy and renewables.

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If all conditions are met, the deal is expected to go through in the first quarter of 2019.

The buyer group, including AGT CEO Murad Al-Katib, Fairfax Financial Holdings Limited and Point North Capital, will indirectly buy all issued and outstanding AGT common shares it doesn’t already own, for $18 per share in cash.

“Following a fairly lengthy process to consider the interests of all stakeholders of AGT and the future of the company, the management group, together with the other members of the buyer group, are excited at the prospect of a new chapter of AGT,” Al-Katib said in a release Tuesday.

The share purchase price represents a premium of 36.7 per cent above the closing price of AGT’s shares on the TSX on July 26, when the buyer group first announced its intent for the company.

As of Tuesday morning, AGT will stop paying any further dividends on its shares, whether the privatization is completed or not.

AGT stock hit its market high in May 2016 at over $40 a share but has since fallen steadily in value as trade issues have hit the pulse crop market. India, Canada’s largest pulse buyer, has placed tariffs on pulse imports into the country.

Regina-based AGT has diversified in recent years, acquiring railways and increasing its holdings in food processing. It also recently became part of the Arctic Gateway Group consortium, which now owns the Port of Churchill and Hudson Bay Railway.

A special AGT committee which reviewed the privatization deal, receiving advice from independent financial and legal advisors over the past few months, unanimously recommends the company’s board and shareholders approve the deal. It will require approval from at least two-thirds of votes cast by all common shareholders.

The buyer group represents about 17 per cent of AGT shares, according to its July 26 announcement.

TD Securities provided the special committee with an updated opinion that as of Monday, the fair market value of AGT’s common shares is between $17 and $21 per share. AGT stock closed Monday at $15.84 per share.

AGT shareholders had spoken out against the privatization when it was initially announced. Letko, Brosseau and Associates, a Montreal investment management firm, said in July it believed the proposal “significantly undervalued” AGT.

Letko Brosseau, which said it holds an 18.7 per cent stake in AGT, reiterated Tuesday it still plans to vote against the proposed going-private deal.

The investment firm said Tuesday it “continues to believe” the proposed deal undervalues the company and AGT “could generate greater value for its shareholders over the long term as a public entity.”

The deal will be subject to approval from the Ontario courts as well as regulatory approval in Canada, the U.S. and other countries where AGT operates or owns assets. According to AGT’s website, those include Turkey, Australia, China and South Africa.

The privatization agreement also prohibits AGT from soliciting competing bids and imposes a break fee of $11.5 million, payable to the buyer group, if the company instead pursues another offer or changes its recommendation to shareholders.

— Ashley Robinson writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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AGT, in a release Thursday, said it has received a non-binding proposal from a senior management group, led by company CEO Murad Al-Katib, to acquire all its issued and outstanding common shares.

The proposal values AGT’s TSX-traded common shares at $18 each in cash, about a 37 per cent premium over Wednesday’s closing share price of $13.17, which was down $1.38 from Tuesday’s close. AGT shares closed Thursday at $17.76.

The proposal from the AGT management group — whose members today have combined control about 17 per cent of the company’s stock — also calls for investment firms Fairfax Financial Holdings and Point North Capital to retain their current combined stake of about 10.5 per cent.

The senior management team would also remain in their current positions with AGT once a transaction is completed.

AGT, in Thursday’s release, said its board has agreed to establish a committee of independent directors to consider the privatization proposal.

There is no timetable set for the independent committee’s review and AGT said it’s not planning to make any further public comment until the review is complete.

One of the company’s major stakeholders cautioned late Thursday it plans to vote against the management group’s proposal.

Letko, Brosseau and Associates, a Montreal investment management firm which says it has control of about 18.6 per cent of AGT shares, said in a separate release it believes the proposal “significantly undervalues” AGT.

The investment firm said it “remind(s) the company’s board of directors of its duty to consider the interests of all shareholders in reviewing the merits of this offer.”

AGT is a pulse and durum buyer, processor and exporter with locations around the world. The company has diversified in recent years, buying railways and increasing its food processing divisions.

AGT stock, which in May 2016 topped out at $42.05, has since generally fallen in value as trade issues have hit the pulse crop market, with India — Canada’s largest pulse buyer — having placed tariffs on pulse imports.

— Ashley Robinson writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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In May its stock hit highs of more than $40 per share. Almost a year and a half later, the story had changed and AGT stock hit lows of almost $18 per share — a level not seen since mid-2014. Marching in near lockstep with AGT stock were pulse crop prices.

AGT is a pulse crop and durum wheat buyer, processor and exporter with locations around the world. The company has diversified in recent years by purchasing railways and building its food-processing divisions.

If you hold a graph of AGT’s stock prices from the last five years over a graph of Saskatchewan lentil prices from Statistics Canada the lines are extremely similar. At the start of 2013 lentils were sitting at $420.86 per tonne and AGT stock was around $13 per share. As the price of lentils edged up over the following years, AGT stock followed suit. When AGT stock hit over $40 per share in May 2016, lentil prices had hit a high only a few months before at $1,051.89 per tonne.

The price of pulses in Canada was driven higher following the 2015 harvest. India, a large consumer of pulses, had suffered from two consecutive years of drought. In 2015, India bought 30 per cent of Canada’s pulse exports, totalling 1.5 million tonnes.

“This is a commodity cycle. As prices accelerated demand was really strong, farmers planted more acres here but they also planted more acres in other countries around the world… So I think what we’re seeing now is the reaction, commodity prices have come down. The cycle will reset itself,” said Murad Al-Katib, president and CEO of AGT.

Moves with markets

As the Canadian pulse crop was planted and harvested in 2016 prices began to show the changing marketplace. In July lentil prices dropped to $870.78 per tonne and $721.05 by October. AGT stock followed suit and started to fall.

Over the summer of 2016 prices fluctuated, at times dropping to below $32 per share and other times hitting more than $36 per share. In October stocks were sitting around $38 per share but as lentil prices continued to drop over the next year AGT stock followed suit, dropping to around $25 per share by May 2017.

• Read more: India will continue to import Canadian pulses, AGT says

The summer of 2017 was clouded with uncertainty for the Canadian pulse industry. A regularly renewed fumigation exemption from the Indian government was only renewed for a few months. As the deadline drew closer no further exemption was granted, leaving Canada sitting in the dark.

In October the Indian government began to sell off its 1.8-million-tonne stockpile of pulses, adding supplies to the world pulse marketplace.

The uncertainty in the pulse industry transferred over to AGT. On Nov. 6 the company released its third-quarter results to investors which showed a dismal picture. AGT’s adjusted gross profit for the quarter had decreased from $47 million as of Sept. 30, 2016 to $29.4 million as of Sept. 30, 2017. AGT stock as well had dropped as a result of the low pulse prices.

“The market has reacted to us to say, ‘Look your earnings came down.’ So we got punished, our stock was down, I don’t know, 40 per cent, that’s a big reduction in the value of our company,” said Al-Katib.

Most of AGT’s profit in the quarter came from its food ingredients and packaged food divisions. The company also announced it had received a 99-year loan of $190 million from Fairfax Financial Holdings Ltd. at 5.37 per cent, which allowed AGT to reduce its net debt by 29 per cent. Stock that day closed just over $20 per share.

More troubles

A few days later more bad news came for the pulse industry. India placed a 50 per cent tariff on all pea imports into the country. The tariff was meant to help prop up domestic pulse prices for Indian farmers. Two days later AGT’s stock dropped to less than $18.50 per share.

• Read more: India raises chickpea import duty to 40 per cent

Over the next month AGT’s stock did regain some of its value. On Dec. 18, AGT announced a 20-year agreement with Fibreco Export Inc. a wood fibre exporter, to construct a terminal at its port space at the Port of Vancouver.

The pulse industry was dealt another blow only a few days later. On Dec. 21 India placed another import tariff of 30 per cent to chickpeas and lentils. However, AGT’s stock didn’t plunge this time, instead falling only a few cents to just under $20.40 per share.

“The latest tariff was lentils which should have obviously (affected our stock) if people were concerned… (but) we’ve communicated to the market very clearly stability in our financing. So our balance sheet is strong, our food ingredients business is growing and we’re diversified,” Al-Katib said.

When pulse prices were high Al-Katib said AGT was planning for the future by reinvesting profits back into the company. Approximately $60 million to $70 million per year for the last five years was invested into different infrastructure projects, including processing facilities around the world and shipping systems in Canada.

“Those types of investments are going to continue for us. We’re going to continue strongly into this value-added ingredients and we’re going to continue to look at the production of food products from pulses,” Al-Katib said.

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“As a food industry I think we have to be prepared for what could be a transformational earthquake that is coming with consumers where there is a connection between natural and non-GMO and healthy, clean labels. And pulses give us that opportunity to look at protein, fibre… micronutrients, natural bio fortification.

“We are seeing all these trends aligning.

“When I look at the demand fundamentals from a product development standpoint and a consumer trend standpoint this is actually an irreversible trend,” Al-Katib, who is also president of the Canadian Special Crops Association, told a record crowd at the Pulse and Special Crops Convention (PSCC) here July 6. “It’s not one that I think is grounded in a fad or some type of a temporary phenomenon where we are going to see pulse consumption and ingredients rise and then potentially taper off. We are ultimately looking at a high-protein, high-fibre, non-GMO, gluten-free product, with a very strong and environmental story to tell.”

Perhaps the biggest challenge facing the industry, however, is telling its story. That’s getting easier too, once people know what they are.

Pulses are the edible seeds of plants in the legume family. Dried peas, edible beans, lentils and chickpeas are the most common. (Soybeans and peanuts are legumes, but their dried seeds are not considered ‘pulses’ because of their higher oil content.) Pulses are high in protein and fibre and low in fat. As well, they are nitrogen-fixing crops that improve the environmental sustainability of annual cropping systems.

Canada, the world’s largest pulse exporter in the world, is expecting a record pulse harvest this year.

Despite a depressed stock market and low commodity prices, the future demand for pulses is huge, said Peter Hall, vice-president and chief economist with Export Development Canada. The U.S. economy is growing and so is China’s, along with its middle class and that of India’s, he said.

A record 530 attendees, including more than 140 from 24 different countries, attended the convention. With Canadian pulse exports on the increase people came to the meeting to see what’s happening, said Gordon Bacon, president of Pulse Canada and CEO of the Canadian Special Crops Association.

“This is our biggest convention ever,” Bacon told reporters. “It is the biggest sponsorship we have ever had. This is the biggest number of international delegates that we have ever had. I think it is all saying what we’ve been feeling, and that is this, the pulse industry is in the midst of an expansion in market base. Not only are we a big supplier on a global, traditional market scale, but we are starting to see this new level of interest.”

Back-to-back droughts in India, the world’s largest pulse importer, have contributed to the increased demand, pushing world prices up and enticing Canadian farmers to produce more, he added.

And the United Nation’s International Year of the Pulse has given it some badly needed exposure in developed countries, where the main source of protein is meat.

“This is what our communications company told us: nobody knows what pulses are,” Bacon said. “‘Nobody knows why they should be passionate about them. And when they do know what they are, they don’t know how to use them. Other than that your future is bright.’ So really our whole focus has been on increasing awareness of what pulses are and where they are going.”

Those efforts are paying off. So far this year pulses have received more than 1.9 billion “exposures” through media features, he said.

Interest will only grow, Al-Katib said, based on what he sees in young people, including his 14-year-old daughter.

“I would consider (her) a socially conscious, very intelligent young lady,” he said. “And she cares about her food labels. She wants to see natural ingredients. She cares about the environment. I wouldn’t consider her an environmentalist, but I consider her somebody who is… what the model consumer 10 years from now is going to look like.”

The first afternoon of the conference was aimed at food manufacturers and retailers. Bacon expected about 50 but 200 registered. The event featured a salad, main course and desert all made from pulses. A chef demonstrated cooking with pulses, showing how beans could replace eggs as well as boost the protein and fibre content in foods from smoothies to hamburgers.

Pulse flours are being used in everything from pasta to snacks, including Frito-Lays’ new veggie chips and Breton crackers.

Meanwhile, Pulse Canada is working with researchers and Health Canada to document the health benefits of pulses. The high fibre content in pulses reduces harmful cholesterol. Pulses are low-glycemic foods, which can help diabetics.

Pulses also produce their own nitrogen, making food production more environmentally sustainable, Bacon said.

“Sixty to 70 per cent of the non-renewable energy use on a farm is associated with fertilizer production, transport, storage and application — there are science studies that show us that,” he said.

Pulses combined with 4R nutrient stewardship designed to cut nitrogen losses and zero till, will make a big change in agriculture’s footprint, he said.

Pulses have a lot of benefits for Canadian farmers too, including $3.5 billion in cash receipts last year — up $1 billion from the year before, Agriculture Minister Lawrence MacAulay told the meeting.

“When it comes to success your sector has covered all the bases,” he said.

Key to that success has been listening to consumers, Bacon said.

“That’s why we started focusing on health outcomes,” he said. “That is why we partnered with Health Canada… because we are in the marketing business and we have to deliver what consumers want. We want to be ahead of what consumers are asking for and position, not only pulses, but all Canadian products to take advantage of what it is they want.

“I am fully trusting of a science-based food safety system, but I have to meet what consumers want. That’s the business of marketing because consumers do have options…”

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The report “Pathways: Connecting Canada’s Transportation System to the World” is the result of an accelerated review of the federal legislation. The scheduled review was pushed ahead by a year in the wake of the grain transportation crisis of 2013-14.

So a lot of people in the grains industry were pinning high hopes that the review panel would recommend changes designed to ensure the railways do their part to get the right grains to the right port at the right time.

It’s important to note that the panel was assigned to look at the entire transportation system. Not surprisingly, the panel found that generally speaking, the transportation network is not in good enough shape to keep Canada competitive into the future.

“Our global infrastructure and related rankings have been declining and Canada continues to compare less favourably to other developed nations on a number of measures — a disturbing trend for a small, open economy in which prosperity depends on success in global trade,” the report says.

It goes further to suggest that when it comes to infrastructure investments, government priorities have been — we’re paraphrasing here — politically expedient and short sighted.

When it gets to the grains section, the conclusions are hardly surprising.

Murad Al-Katib, the grain sector lead adviser to the Canadian Transportation Act review secretariat, strongly hinted at various meetings last year that the review panel would find removing the Maximum Revenue Entitlement (also known as the “revenue cap”) conducive to increased investment in improved service. He stated that shippers care more about service than cost — as if the two were linked.

The federally appointed Grains Logistics Working Group found otherwise; evidence shows commodities not covered by the MRE do not receive better service or lower freight costs.

Nevertheless, the CTA review report recommends getting rid of the MRE over the next seven years because “an unfettered commercial framework provides greater assurance that supply chain partners who handle and transport grain will invest in innovative supply chain solutions to move grain efficiently in years to come.”

It also concludes that the MRE stifles innovation and found “no compelling evidence” to suggest grain shippers should merit special protection over other shippers.

It is here that the panel misses the point of the MRE, which is not to protect grain shippers, so much as grain farmers from gouging. Grain producers pay the full cost of shipping their grain, but they are not the ones negotiating the freight. As such, they are captive in a way that coal shippers are not.

As well, coal is coal, whereas grain consists of a multitude of commodities of varying qualities that must be picked up at numerous locations and delivered on a time-sensitive basis to the ships waiting at port. Poor railway service can mean demurrage charges, lost sales and reduced competitiveness.

The panel refers to, but does not cite, studies that it says “support the notion that Maximum Revenue Entitlement has had adverse effects on the efficient operation of the grain-handling and transportation system.”

Further, that regulation keeps rates higher than necessary by stifling technological and service innovations.

The report does cite a letter dated April 10, 2015 from CN CEO Claude Mongeau that states, “the regulatory framework for Western Canada grain is ill suited to promote sound railway investment through adequate pricing mechanism.”

We’re left wondering if CN also provided those aforementioned “studies.”

Mongeau’s conclusions are contrary to the findings of the Grain Logistics Working Group, which found no evidence to show that the MRE hurts the railways’ ability to invest and innovate. The MRE does not cap how much grain the railways can move, nor does it cap how much they earn. It merely caps the average rate they can charge per tonne, adjusted for railway inflation and the distance travelled. The more grain the railways move, the more they can earn.

That research found that railway profitability was actually higher under the MRE than if there was true competition in rail freight. It also found that while the MRE has little impact on service, the lack of competition does.

It remains to be seen what the Trudeau government will do with a report commissioned by its Harper predecessor. But from this desk, it appears that the CTA review panel has bought into the myth of deregulation as the go-to solution.

Deregulation must go hand in hand with competition. It is no longer a question of whether to implement open running rights, but how.

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