OTTAWA, September 28, 2016 – The Canadian Federation of Agriculture (CFA) has submitted recommendations as part of the federal government’s consultation on the Canadian Transportation Agency review (the Emerson report). CFA insists that as Transport Minister Marc Garneau meets with his provincial counterparts this week, he must commit to meeting in person with western farm leaders to hear their concerns, since it is farmers – not grain companies – who pay costs to transport grain by rail.
With another bumper crop already on its way to grain collection bins, farmers are deeply concerned about a repeat of the backlog in 2013-2014 due to the railway companies’ inability to fulfill shipping contracts and deliver grain to exporters on time. During the crop years from 2012-2014 losses to the prairie economy due to export capacity constraints are estimated at between $5-$6.5 billion, according to a study by University of Saskatchewan economist Richard Gray.
“At the core of these issues is the reality that western grain transportation system is nearly devoid competitive freight options. Most farmers can only access one railway to transport their grain to export positions. That’s why CFA stresses that regulation through Maximum Revenue Entitlement (MRE) and provisions like interswitching are essential – they protect farmers from monopolistic practices of rail companies. Farmers strongly disagree with the Emerson report recommendation to dismantle the MRE program within 7 years, and to sunset interswitching options,” said CFA President Ron Bonnett.
“Policy makers must understand that grain farmers are on the hook for all shipping costs. Farmers paid the railways a total of $1.4 billion to move grain to port last year, plus fees for disruptions and delays, and even penalties charged by shipping companies when their vessels have to wait at port,” said Bonnett. “It’s imperative that Minister Garneau takes the time to meet with farm leaders. They have a critical financial stake in this matter. We are certainly grateful for the discussions we’ve had with Agriculture Minister Lawrence MacAulay, but we understand that the final decisions coming out of the CTA review will rest with Minister Garneau.”
CFA recommends that in addition to maintaining the MRE, the government must change the way the MRE is calculated by using more accurate measures than a simple inflation index based on freight cost data from 1992. The MRE must emulate freight rates that would be in place in an open and competitive rail transportation system.
CFA recommends that Minister Garneau immediately initiate a costing review of the rail system to ensure the railways are not abusing their monopolistic position – a promise made during the 2015 election campaign. The current rates are determined through rates established from a costing review conducted almost 25 years ago.
Increases in efficiency and technology have not been factored into the costs for rail companies. As just one example of increased efficiency: pick up points for grain have been reduced from over 1000 elevators in the prairies to roughly 240 for the whole region, allowing trains to stop less and pick up more per stop. This also means farmers have to further distance to truck their grain to rail terminals, which adds to their costs. None of this is reflected in the current MRE calculations.
In a near-monopoly environment, CFA reiterates that farmers need an MRE based on updated real-cost data, and an expanded inter-switching area, as both provisions are important tools for bringing the grain transportation system much closer to one that emulates an open, competitive market.