It will be the elephant in the room at farm meetings across Western Canada in the New Year. Even though it’s one of the most important issues facing the grain economy, grain logistics will seldom be addressed directly.
As you look through the agendas for Crop Production Week and CropSphere in Saskatoon, Ag Days in Brandon, FarmTech in Edmonton and CropConnect in Winnipeg, the topics range from precision agriculture to sustainability, with lots of farm and financial management and all the usual market outlook presentations.
Save for one presentation at CropSphere, an outsider or government bureaucrat looking through the speaker topics could conclude that farmers aren’t really that concerned about the grain movement backlog.
In reality, this is a top of mind issue for producers and one that will be referenced in each of the market outlook presentations. So why aren’t we dealing with it directly? Why aren’t we looking for solutions?
Many grain handling facilities are not accepting any further sales until the summer or later. There’s a long lineup of vessels in Vancouver receiving demurrage payments. Grain prices in Western Canada have developed steep discounts to what farmers are receiving just south of the border.
Can you imagine what the commentary would be if the CWB monopoly was still in place? With that convenient scapegoat long gone, there isn’t much appetite to rehash the old discussion about the virtual monopoly enjoyed by the two major railways.
Of course, the railways are quick to provide statistics showing their performance is well ahead of last year and ahead of the five-year average. It’s such a big crop that you can’t expect them to move it all at once, right?
While unprecedented production prairie-wide has resulted in an unprecedented backlog, this isn’t a one-time problem. If you believe the long-term grain production forecasts and the forecasts for increased exports of other resources such as potash and crude oil, the current difficulty should be viewed as a wake-up call.
One simplistic solution is to get rid of the grain revenue cap. Some claim it’s a disincentive for the railways to move large volumes.
In reality, the cap is volume dependent. The more the railways move, the higher the revenue cap.
You could argue that the railways give preference to other commodities where no cap exists, but there’s also evidence that the railways are being paid well for grain movement. The cap is indexed to inflation. Meanwhile, the railways have been able to capture efficiency gains over many years of system rationalization.
It is true that the railways have no incentive for surge capacity to handle an extra-large crop or to move more of the crop early in the fall. The grain will be there when they get to it. They have a captive customer.
A few years ago, Blair Rutter of the Western Canadian Wheat Growers Association put forward the idea of a two-tier revenue cap. The cap per tonne would be higher during peak periods when higher volume movement is needed and would be lower for the remainder of the year.
The total freight bill would be roughly the same, but there would be more incentive to match shipping capacity to the needs of the industry. It’s an idea that warrants discussion.
As farmers, we like presentations on marketing, agronomics and management because these are issues under our individual control. However, we also need to find collective solutions to big issues, particularly logistics.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at [email protected]