Jim Everson, Soy Canada’s executive director, says agriculture and resource sector shippers are concerned CN and CP may not have the capacity to deal with larger volumes.

All the resource-based industries are expecting to increase production in the future, Everson told the Senate agriculture committee.

“To do so, we need to be able to take that to market, and in Canada our way of doing that is by rail,” Everson said. “It’s critical in the future that the rail infrastructure be sufficient to carry ever‑increasing volumes of grain to market.”

It’s also necessary to develop measures so the railways are under the same type of financial penalties as shippers for failing to meet delivery commitments, he added.

“The government has to play a role because it really isn’t a market‑driven sector,” Everson said. “It has to play a role in ensuring that there is reciprocal performance accountability.”

Everson and Phil de Kemp, the Canadian Barley Council’s executive director, were questioned by the committee on the rail issue. Ontario Senator Lynn Beyak said she hears the same concerns about railway capacity while serving on other Senate committees. She said there are good ideas in the Emerson report on the review of national transportation policy, but doesn’t see any urgency in acting on the problems.

De Kemp said the grain transport backlog during the winter of 2013 and 2014 combined with the Emerson report has put the rail capacity issue in the spotlight.

“The urgency is there,” de Kemp said. “Sure, we have got through this hump right now, as far as the backlog issue on grain, but it could happen again. It is not just if you get an increase in production.”

De Kemp said shippers are dealing with oligopolies that have a lot of power over how shipping flows, something that’s troubling for the export shippers.

“Everything depends on railways to ports for all our exports,” he noted. “That’s why I say that it really is in our national economic security interest, and it is not just for grain.”

De Kemp added the railways have been “whittling down” infrastructure and said one railway in particular — which he stopped short of naming — was widely viewed as a major source of concern by shippers.

“I think everyone knows what I’m referring to,” he said. “If the airlines operated the way the railways did, passengers encountering flight delays caused by weather and other problems would still be sitting in an airport for three months, because they only had so many planes to take everybody.”

He noted the number of Prairie grain elevators has been whittled down from about 3,000 to 300, almost all with 100-car loading spots.

“The efficiency is there,” de Kemp said. “They can turn these things around in 24 hours.”

All those efficiency gains by the grain industry are being squandered by the railways, he said. Shippers can wind up waiting days for full cars to be picked up or find their delivery of empty cars for loading delayed just as long.

De Kemp added the grain industry understands the issues well, and will continue to lobby for changes to address them. He added that other sectors are impressed with the way the grain industry players have pulled together.

“We know where the efficiencies are. We know where the efficiencies aren’t,” de Kemp said. “The grain industry, collectively, has got its act together, all of us, sitting at the table. We know where we need to go. If you get cold weather, you need that power capacity. We have the data right now.”

He said getting it right is important, and he’s puzzled as to why the railways can seem to deliver freight in a very timely manner for other industries.

“They seem to be able to do that for the automotive industry, as far as just‑in‑time deliveries for auto parts,” he said. “We just hope that they could do the same for us.”

He also noted replacing the fleet of grain hopper cars built by the federal government in the 1980s will be a huge issue as the cars reach the end of their useful lifespan.

“To order a new hopper car right now, it is about a three‑year wait,” de Kemp said.

De Kemp also said shippers are able to get better freight rates through the 160-kilometre interswitching limit, instituted by the former government in 2014, and recently extended by the Liberals for another year.

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“The sacrifice of two cents on a bushel of wheat, historically… was put into some type of investment for the betterment of grain transportation,” he told reporters during Brandon Ag Days.

If items such as rail cars are now sold, the profit should be put back into programs designed to help farmers transition to the open market, Kostyshyn said.

“And what’s going to happen with the CWB building in Winnipeg? Where are some of these assets going to be distributed?” he said. “Isn’t it fair to continue to ask for some of the money to be used within the provincial Treasury Department to provide additional support whether it be through educational programs, or through some other means of subsidizing the transition period?”

Discussions between the federal government, the provincial Finance Department, and grain producers would be needed to facilitate such a transfer of assets, said Kostyshyn.

Earlier this month, a class-action lawsuit was filed by Regina lawyer Tony Merchant targeting CWB assets valued at more than $15 billion. In a release, he stated assets such as buildings, cash and rail infrastructure, “cannot simply be subsumed by the federal government.”

The statement of claim names Duane Filson of Woodrow, Saskatchewan, a municipal politician and farmer, as the representative plaintiff.

When asked about the viability of the lawsuit, Kostyshyn said he would like to think it will be successful.

Other legal challenges have also been brought against Bill C-18, the Marketing Freedom Act for Grain Farmers, which passed the Senate last year, and has received royal assent from Governor General David Johnston.

Following a legal challenge by the Friends of the Canadian Wheat Board last December, Federal Court Justice Douglas Campbell ruled that Agriculture Minister Gerry Ritz broke the Canadian Wheat Board Act by introducing into Parliament Bill C-18, which will create an open market as of Aug. 1, 2012.

Kostyshyn didn’t rule out the use of provincial money to fund potential transition programs if federal funding is not forthcoming, but said there have been no formal discussions regarding the issue.

“But we are, right now, in the budget-processing (period), so money is on the table,” he said.

Assistance for producers in areas with less access to his department’s offices would be one of the priorities, said the minister, adding he wants to keep lines of communication open and consistent during the transition process.

“Our government stood with the majority of producers that wanted to keep the Canadian Wheat Board, but as we all know we now face new realities,” he said. “Now we need to adapt and keep moving forward.”

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The answers varied, with some saying it was worse, and several saying there wasn’t much impact and a few saying it was better.

To read the full thread go to: http://www.thecombineforum.com/forums/27-general-farming- board/27766-questionaussies- about-awb. html.

More middlemen to screw the prices down, traders are not interested in farmers getting high prices. As long as they make a margin it doesn’t matter to them if prices are high or low. … Terrible logistics in organizing export cargoes, multiple exporters all wanting to load ships at the same time leading to shipping bottlenecks. Someone has to wear the cost of idle ships waiting to load. Guess who eventually wears that cost? Deregulation hasn’t benifitted the average Australian farmer at all.

One thing that can’t be disputed is that in its original form the AWB acted in the best interests of growers. That is not the case anymore.

It has made zero difference to my business.

I prefer it now because you can sell for cash whenever you want and not restricted to pool sales only.

I pooled some wheat last harvest and it will have poorest return maybe by as much as $70 the way markets are going and I have 15 per cent of new season’s wheat sold for cash at good levels which would not have been possible in old days. But I also have 10 per cent contracted in the premium pool as well.

Honestly it’s no big deal either way and nobody really wants to go back to what we had in my opinion.

It is undoubtedly more complex now. However, the opportunities are also greater I feel. In terms of prices, I feel that the highs are now higher, the lows are lower, and the price changes in between happen much quicker.

The issue of the perception of Aussie wheat quality is a real concern, with traders now more likely to sell for a quick buck rather than long-term relationships.

In summary, I don’t sit back and think “gee I wish we still had the single desk.” I’m reasonably happy with how it is now, but make sure your government maintains investment in rail infrastructure, as this is our No. 1 problem.

Our reputation for quality has been damaged. No doubt there are some good traders but in general the farmers are the losers. … Today’s prices have fallen $25 a ton.

I believe the removal by government of AWB’s single- desk export monopoly has cost our industry dearly. Growers now have no equity at all in their own industry, everything beyond the farm gate is now in the hands of traders, and most of those foreign owned. So much for increased choice.

To cut to the chase. No, it’s not better at the moment. If there is pressure from you know who to get rid of the CWB and if the growers wish to maintain the CWB as a grower-based marketing organization, then the growers need to grab CWB by the short and curlies and take charge to drive it forward. Otherwise – it’s gone.

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CP plans to invest in the range of $950 million to $1.05 billion on rail infrastructure while CN intends to spend $1.7 billion.

CP chief financial officer Kathryn McQuade says her railway will focus “on continuously improving service reliability, asset velocity, and productivity.

“With strong demand projected in many of our commodity-based businesses, this capital plan will enable us to meet our customer’s needs and continue to lower our operating ratio to create a stronger franchise for the future,” she said.

“Investing in fast payback productivity and technology projects to further our lean and process re-engineering efforts thereby further improving shipment reliability and customer service.”

The railway will be pursuing growth in its transload, inter-modal and energy projects which offer and will continue investing in “Digital Railway” technologies to lift efficiency, service and safety to new levels, she added.

Among the top projects dollar- wise are:

$680 million for basic track infrastructure renewal;

$200 million for volume growth, productivity initiatives and network enhancements;

$80 million to strengthen and upgrade IT systems to enhance shipment visibility and information needs, and

$40 million to address capital regulated by governments, principally train control.CN’s priorities are projects

“to maintain a safe and fluid railway network, to grow the business efficiently and to continue to provide customers with a high level of service,” says Claude Mongeau, president and CEO.

“In the last five years, CN spent almost $8 billion on capital improvements. Such investments serve to build a quality network that, in turn, supports economic growth across Canada and the United States,” he said.

Approximately $1 billion of CN’s 2011 capital investment program will be targeted on track infrastructure to maintain safe railway operations and to improve the productivity and fluidity of its rail network. This includes replacement of rail, ties and other track materials and bridge improvements.CN’s

infrastructure envelope includes funds for strategic initiatives across the system and additional network improvements in Western and Eastern Canada, Mongeau said. “Equipment spending, which is intended to improve the quality of the fleet to meet customer requirements and includes the acquisition of new fuel-efficient locomotives as well as new freight cars, is targeted to reach approximately $200 million in 2011.”

CN also expects to spend approximately $500 million on facilities to grow the business, including transloads and distribution centres to serve off-line customers; new information technology to support operational and service excellence and other projects to increase productivity, he added.

Both railways were buoyed by their 2010 results. “During the year we once again improved our industry-leading train safety performance, a great accomplishment while moving a significant increase in volumes,” said Fred Green, CP’s president and CEO.

For the year, CP’s total revenues increased 13 per cent to $5 billion and its operating ratio improved to 77.6 per cent. “We are ramping up our resources and making long-term investments in our company to meet growing demand, further improve customer service, and achieve our three-to five-year target of a low 70s’ operating ratio.”

CN reported net income of $2.1 billion for 2010 compared to $1. 8 billion in 2009. Revenues for the year increased by 13 per cent to $8.3 billion, “mainly due to significantly higher freight volumes as a result of improving economic conditions in North America and globally; the impact of a higher fuel surcharge as a result of year-over- year increases in applicable fuel prices and higher volumes; and freight rate increases,” Mongeau said.CN’s operating ratio for 2010 was 63.6 per cent, compared with 66.7 per cent in 2009.

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Silos in the world’s fourth-largest wheat exporter are brimming with grain after the breaking of a once-in-a-lifetime drought, but inefficient ports and snail-pace trains cannot keep pace with the rebound in supply in a newly liberalized market.

Ships are waiting for up to five weeks to load cargoes at export ports and, as a result, wheat exporters say they can’t guarantee prompt delivery and that they could lose sales as Asian flour millers threaten to look to North America for supplies.

Even a new wheat export futures contract, to be launched in May, that could become a global benchmark, might be in jeopardy because of doubts over whether contracted wheat from Western Australia, the main export hub, can be delivered on time.

“We may be a first-world country but we’ve got third-world infrastructure,” said Doug Whitehead, a soft commodity analyst at Australia & New Zealand Banking Group Ltd.

THIRD-WORLD INFRASTRUCTURE

“They (flour mills) are looking to the United States and Canada for similar protein wheats,” he added.

Indonesia recently bought 60,000 tonnes Standard White wheat (SWW) from the United States at $236 a tonne on a cost-and-freight basis, but it could have instead purchased Australian Standard White at $222 per tonne into Indonesia.

Similarly, South Korea last week bought 10,000 tonnes of U. S. wheat that could have come from Australia at lower prices.

Whitehead says price-sensitive customers in Asia will continue to buy grain from Australia, which is competitive because of its proximity to Asian ports. But if the customers want prompt shipment, they will look elsewhere.

Poorly kept rail tracks, a lack of rail capacity and unexpected problems associated with last year’s liberalization of Australia’s wheat-export industry have been blamed for hampering exports that are still expected to jump about 66 per cent to above 10 million tonnes this year, thanks to drought-breaking rains.

The teething problems arose during this season’s harvest, the first since Australia scrapped its wheat-export monopoly, run by AWB Ltd., and replaced it with a competitive system of 22 licensed exporters.

TRAINS SLOWER THAN BICYCLES

Grain trains move from farm to port at a bicycle’s pace.

“You’ve got trains running around at 16 kilometres (km) per hour, but if the tracks were fixed they could be running at 70 km per hour– then a train could make two trips a day instead of half of one,” said Colin Tutt, general manager at CBH Operations, which handles most of the grain from top exporting state Western Australia.

In Western Australia, a grain industry taskforce has estimated that an initial A$400 million ($264 million) was needed to be spent just on essential track-work to speed up trains.

Wheat-producing states also hope to tap into a A$2 billion national infrastructure fund to finance the upgrading of rural rail networks neglected during years of drought and monopoly. But specific allocations to help the industry have yet to be announced.

Tutt said the rail network had been developed in the monopoly days.

“We haven’t had the opportunity yet to actually modify it to meet the new demands of a deregulated environment,” he added.

CBH has expanded its road transport fleet, boosting its grain-handling capacity, from rural silos to port, to 1.1 million tonnes a month from 795,000 tonnes.

BICKERING

This has solved part of the problem, but not the bottlenecks at the ports. In Western Australian ports, inefficiency means there is bickering over shipping allocations.

“Everyone is a bit frustrated as it’s adding to costs that have to be absorbed,” said Mike Chaseling, deputy chairman of grain marketer Emerald Group, which was hit with demurrage charges in Western Australia as ships waited to take on about 500,000 tonnes of wheat destined for Iran.

Chaseling said east coast exports had also slowed to a snail’s pace because of poor tracks and a lack of rail capacity after one of the main rail-freight firms, Pacific National, withdrew from the grain business in 2007 to concentrate on coal.

In New South Wales, the second-largest grain-exporting state, the number of wheat trains has dropped to about 18 from 48 in the last few years, partly reflecting Pacific National’s move.

On the east coast, in New South Wales state, an inquiry is also underway into the state’s grain rail network.

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“East coast grain exports are moving at absolutely a snail’s pace and exports generally across the industry for wheat are a lot lower than they should be.”

– MI KE CHASELING

Australia’s grain supply pipeline needs significant investment to overcome problems exporters face in getting grain to customers, an industry representative said March 3.

Mike Chaseling, a deputy chairman of grain-trading firm Emerald Group, said exporters had encountered major difficulties because of a lack of transport capacity.

Multiple exporters are jostling with each other to fill orders from Australia’s first harvest since deregulation ended a monopoly over exports held by AWB Ltd., the former Australian Wheat Board, since the Second World War.

“There have been really significant teething problems, some we will get over and some more embedded,” said Chaseling, speaking on the sidelines of the Australian Bureau of Agricultural & Resources Economics (ABARE) annual out look conference.

ABARE forecast Australia’s wheat exports will surge 44 per cent to 14.68 million tonnes in 2009-10, as production recovers after years of drought and stocks return to more normal levels.

DAMAGING TRADE

Chaseling said the problems could damage Australia’s grain export trade if overseas buyers decided they could not rely on shipments from Australia.

Already flour millers in South Korea and Indonesia have expressed concerns, with Indonesia saying it could import less Australian wheat than previously planned because of the delays.

“There’s no doubt that it is hurting as if you are an

international buyer and you come to me wanting to buy wheat, I need to say to you I can sell it to you but I can’t guarantee to you when I’m going to make that delivery,” Chaseling said.

He said in Western Australia, the country’s top exporting state, bulk handler CBH Group had underestimated the amount of grain that traders wanted shipped, leading to long delays and additional costs as ships waited to be loaded.

CBH, which operates most of Western Australia’s grain-handling capacity, had the capacity to move 795,000 tonnes a month through its system but demand had been much higher.

The bulk handler is boosting its capacity to move grain to port to close to one million tonnes a month by adding extra trucks to its haulage fleet.

“It does go a long way to addressing the issues but it doesn’t get over all of them including the extra costs that are involved,” said Chaseling.

BACKLOG

In February, CBH closed its shipping stem, preventing exporters from nominating ships until it cleared the backlog that had resulted in more than 70 vessels waiting to load grain, according to Chaseling.

On the east coast, Chaseling said the grain rail freight system had “all but collapsed” as rail operators reduced grain capacity in favour of more lucrative coal freight.

“East coast grain exports are moving at absolutely a snail’s pace and exports generally across the industry for wheat are a lot lower than they should be,” he said.

Bulk handler GrainCorp Ltd. handles the majority of the grain exported on the east coast but Chaseling said there was little transparency to the system of allocating capacity to exporters.

“There’s two issues on the east coast – one is transparency and the other is the lack of rail infrastructure where there’s problems with lack of investment in tracks and not enough rolling stock to get the job done,” he said.

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“I don’t know that it will happen in four years, but at least the trend line is changing.”

– PAUL ROHDE

U. S. President Barack Obama’s plan to inject billions of dollars into infrastructure projects is welcome news for the world of agriculture, transportation industry experts said.

But the government must also pass targeted legislation to iron out the sometimes-outdated policies that slow movement and increase the cost of raw materials flowing into and out of crop-producing areas of the world’s biggest grain exporter, they said.

U. S. farm exports totalled a record $115.5 billion in 2008. Commodit ies move from farms located mostly in the interior of the country to domestic markets and export terminals via truck, rail and river barge.

“We’re excited about the new administration, but this is going to be a mammoth challenge,” said Paul Rohde, vice-president at Waterways Council, Inc., an advocacy group that works to sustain and improve the U. S. system of navigable rivers.

“The way we build these locks, the cost of overruns, our country is hamstrung by the process,” he said on the sidelines of the Commodity Classic grain industry convention.

“I don’t know that it will happen in four years, but at least the trend line is changing,” he said.

In his budget proposal laid out this week, President Obama requested $5 billion to create a national infrastructure bank in fiscal year 2010 which starts Oct. 1, saying it would expand and enhance existing federal infrastructure investments.

The transportation industry says that necessary repairs to aging roads, bridges, and river locks and dams have often been neglected until it is too late.

“The whole river works as a system. If just one lock goes down, there’s a ripple effect and all of a sudden the rail rates go up,” Rohde said.

Rail infrastructure has not been neglected as severely as U. S. roads, bridges and river locks because of private investment, but limited competition and a lack of government regulation of the industry has sometimes elevated shipping costs.

Businesses that transport grain and other goods via rail, represented by Jennifer Owen of the group Consumers United for Rail Equity, argue that railroads operate nearly as a monopoly but are not regulated by antitrust laws as they should be.

The rail industry has consolidated from about 40 large railroads in 1980 to just four major players today, she stressed.

Efficiency in the trucking industry has been hampered by rigid regulation that should be updated, some in the industry believe.

“Truckers are limited to the hours they work and that’s for all of our safety,” said Russell Laird, executive director of the American Trucking Associations.

“But during the planting and harvesting seasons, while safety is still important, it’s really hard to get the job done without exemptions,” he said, citing proposed revisions to the number of hours a trucker must rest between shifts during busy periods.

He said ATA is also aiming to revise existing weight limits to ease gridlock and to help make truck transportation of goods more efficient.

Increasing the number of axles on a truck and spacing them out differently can increase the amount of material a truck can haul without undue wear on roads, he said.

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Around 35 million to 40 million hectares of extra land that can be cultivated in Russia, Ukraine or Kazakhstan and a potential for grain yields to rise could push the region to the front of the world export market in the next five to 10 years, analysts say.

But infrastructure and unstable weather will be Black Sea countries’ biggest challenges to taking a more prominent position in the export market and better compete with the United States, the world’s largest grain exporter.

“We have every reason to believe that the Black Sea will become again the garden of Eden, like it was a long time ago,” Geneva-based analyst James Dunsterville of AgriNews said at the GlobalGrain2008 conference recently.

“But they have to invest in their interior infrastructure and for Russia in export facilities,” he added.

Black Sea countries are already big wheat exporters, and their top clients include Egypt , Turkey, Jordan and other Middle East countries.

Russia is expected to export 14 million tonnes of wheat this season (2008-09), Ukraine nine million and Kazakhstan five million, U. S. Department of Agriculture data shows, compared with the U. S. exports, forecast at more than 27 million tonnes.

As demand for grain contracts in recession-hit United States and Europe, fast-developing countries like Brazil, Russia, India and China may more than compensate for the drop.

The increasing demand for meat means that grain-based animal feed consumption is set to rise sharply.

The world would have to turn to the Black Sea for the extra 16 million to 17 million hectares of farmland needed to meet that demand and keep grain stocks steady next year, Dan Basse, head of U. S. analyst AgResource, said.

“The EU, Australia, U. S., Canada have pretty max covered arable land now. If you want to have wheat production coming online it will have to come from countries like the former Soviet Union, i. e Russia, Ukraine, Kazakhstan,” Basse said.

“Those are the countries that still have a tremendous amount of farmland that can be brought into production,” he added, estimating that area at around 35 million to 40 million hectares.

However, much of the land is in remote areas.

“These countr ies have a great area potential but some areas are a long way from the world market, deep in the hinterland,” Simon Bentley, analyst at LMC International, said.

“And it’s not easy to change. It’s not easy to build rail infrastructure. So I don’t think you can expect a huge amount of area to be coming online in the near future.”

Weather drawback

The Black Sea region’s unstable weather is another drawback.

This year’s wheat crop was estimated at 25.5 million tonnes, although rain hit its quality, and is sharply up on 2007 output, which fell to 14 million tonnes due to bad weather.

“The unknown in this part of the world is always the erratic weather pattern. That is always an issue for traders to keep track of,” Basse said.

Andrew Tsarenko, the director of Ukrainian shipping company Novik, said improved technology, better seeds and a stable political environment would be key for his country.

“We need more political stability for big international firms to invest more, which would help quality,” he added.

Political instability, almost constant since a 2004 “Orange Revolution” brought pro-western politicians to power, has shown little signs of abating.

Another limiting factor could come from rising internal demand and Russia’s push to increase livestock herds, a move that would eat up a lot of domestic feed wheat supplies and cut down the exportable surplus, analysts said.

Nevertheless, Basse believes the Black Sea region has the resources to become a dominant force in the world grains market.

“Going forward it’s that part of the world, Russia, Ukraine, Kazakhstan that really is going to be a more and more important driver of world grains prices than ever before,” he said.

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