Be careful what you wish for | Critics say cap removal won’t boost efficiency, just rail profits
Grain groups should reconsider their calls for an end to the railway revenue cap, says a grain transportation expert.
“I would urge caution on the part of anybody who is looking to take away the revenue cap,” said Mark Hemmes, president of Quorum Corp., the government appointed monitor of Canada’s prairie grain handling and transportation system.
“There isn’t any evidence that says just by allowing (railways) to charge more money that all of the sudden you get better service.”
Federal agriculture minister Gerry Ritz said the proposal for eliminating the revenue cap will be on the table when Transport Canada conducts its 2015 rail review.
“This is one solution some farm groups have been musing about that we should look at, but I’m not about to support giving the railways freedom to charge whatever the market will bear,” Ritz said during a recent conference call.
Mercantile Consulting Venture and Agri-Trend are the latest groups to weigh in on the issue.
They sent a joint letter to Ritz proposing that the government cancel the cap immediately and instead determine a minimum grain tonnage the railways have to carry each year. They suggested 39 million tonnes for this crop year.
Marlene Boersch, partner in Mercantile Consulting Venture, said Agriculture Canada is forecasting a 13 million tonne increase in total grain and oilseed carryout in 2013-14.
Using Agriculture Canada’s monthly average prices, she calculated that that represents $3.72 billion that will not be entering the Canadian economy, partly because of a 40,000 rail car shortfall between grain company demand and railway company supply.
“It’s affecting everyone in the economy, not only farmers,” said Boersch.
The federal government recently announced it will conduct a five-year review of the Canadian grain logistics system.
“I find it very disappointing that out of that (Crop Logistics Working Group) meeting in Winnipeg, the only outcome is a study,” said Boersch.
“Sitting and studying is not doing anything for year two or three or five.”
Boersch said railways are selling locomotives and hopper cars and getting rid of employees at a time when growers can’t move the grain piled on their farms.
She doesn’t think that would happen if railways faced penalties if they didn’t meet a minimum grain tonnage target.
“We need to change the regulator framework around the duopoly. That’s what this is about,” said Boersch.
The idea is percolating around the agriculture community. Eliminating the revenue cap was recently discussed at SaskCanola’s annual general meeting and has been making the rounds on Twitter.
Hemmes said there is no evidence that the tactic will deliver the results farmers are seeking. Other commodity groups that pay higher rates are experiencing similar service problems as agriculture.
The only factor that appears to result in better service is competitive forces. All but one potash mine is serviced by both railways, and oil can move by pipeline.
By contrast, most grain elevators are captive to one railway. The railways know the grain will eventually move down their tracks, so raising rates may simply result in a widening basis for farmers and the same disappointing service.
Hemmes said there are no short-term fixes for this year’s grain transportation problem. He isn’t an apologist for the railways, but up until Sept. 1 they were planning to move the same volume of grain as the previous year.
“The grain companies and everybody else around them was saying, ‘yah, that’s probably a pretty good bet,’ ” said Hemmes.
Everybody was caught off guard by a harvest that shattered the previous record.
“The fact is you don’t run down to the corner store and buy a bunch of locomotives. You can’t go to manpower and temporary services and pick up locomotive engineers and conductors. It’s a six to eight month planning cycle,” he said.
Do farmers imagine that this wasn’t the governments and RR’s plan all along?
Scrap CWB..impose cap as a sop…transport chaos…remove cap….suck what ever profit from farmers bottom line to RR’s bottom line. Once the cap is removed how many years at a 9% increase in transport costs will be required before farmers are playing a losing game….
Give your heads a shake…removing the cap will provide the RR’s with a much greater revenue stream (CN CEO Montague-45% increase in comp, CP Harrison-$millions) with little or no accountability imposed by the feds.
Something must be done to move this back log of grain. Canada is becoming known as an unreliable supplier. A title that will stick with us for years to come. On my farm if I hire a trucker to haul my grain and he isn’t getting the job done i simply have to hire another trucker. I think we need a rail system that is capable of the same opportunity. The gov simply needs to award credible companies the rite to run on the rail lines that so many people had a hand in building. Many concessions were made so the rail lines would be built. They were needed so the western economy could flourish. Now we are at a point where the rail lines are holding back the western economy. This gov realized the need for competition with the grain marketing and the removal of the CWB monopoly. Now they must realize the monopoly of CP and CN must be looked at. Everything is geared for hirer production to energize the economy. From chemicals to machinery to etc. but what incentive is there when the grain handling system can’t move it. Right now on our farm we are looking at crops that yield less and we can produce cheaper.from an economic standpoint this is not a good mindset to be in producers minds but agriculture is a bit of a survival game and grain in the bin does not pay bills. I know our fed Ag minister tweaked our Ag stability program when times were good and no one was looking but with what’s going on right now with the discussion of removing the cap and low grain prices I hope the government is prepared to start paying out a lot of money under that program.
Well said Daryl . Why is everyone wanting us to grow bigger crops? The bigger they get the less money we make. Is it time to build another rail line? One that cn and cp have no involvement. One with joint running rights. The same way our airports and hiway s are now.
I could not agrree with you more Brent. Producing more is only shotting us in the foot. Until we find ways for our railways to be forced to haul more the last thing we need is Bring It On. I ask for people to call for a refund with the ACPC to make a point. All they seem to want is their cheak off.
Really??? Did any of the geniuses with the suggestions for removing the”caps” not think about how $5 Wheat is going to be competitive with $100 Oil?