Transportation report suggests voluntary revenue cap option

A rail study commissioned by the Alberta government says Ottawa and the grain industry should explore benefits of allowing grain shippers to opt out of the maximum revenue entitlement (MRE) program.

In its report entitled A Smoother Track for Exports, the Canada West Foundation recommends that the grain industry explore the opportunities for innovation and the consequences of allowing producers and grain companies to opt out of the MRE program.

The MRE, also known as railway revenue caps, limit the amount of revenue that railway companies can earn by moving a tonne of grain on federally regulated railway corridors.

“In the same way that changes in the Crow Rate and allowing farmers to opt out of the wheat board led to innovations by farmers and investment by grain companies, the use of commercial arrangements to co-ordinate volumes and provide incentives and penalties may help spur innovation in the grain handling and transportation systems,” states the report, which was commissioned by the Alberta government in 2015 and made public April 19.

The report also recommends that grain shipped by container also be removed from the MRE program.

The CWF paper makes 25 recommendations aimed at improving rail service in Alberta and across the Prairies.

“Removing containerized grain from the MRE would provide an incentive for railways to promote the use of containers for specialty grains, increase shipping options for farmers and add efficiency to the supply chain,” says the report, co-authored by CWF senior economist Janice Plumstead.

“It also creates the potential for revenue from containers that might otherwise return to the port empty.”

The MRE “acts as a deterrent to efficient operations in the grain supply chain” and adds that “a market rate for grain could eliminate the resistance of railways to invest in more efficient hopper cars as the current fleet retires.”

A complete copy of the report can be viewed online at http://bit.ly/22OvXZO or downloaded from the CWF website at cwf.ca.

The report’s recommendations come as Ottawa prepares to conduct industry-wide consultations this summer on the recently released Emerson Report.

The Emerson Report, which stemmed from a recently completed Canada Transportation Act review process, recommended that the MRE be phased out over a seven-year period in hopes of establishing a more “commercially grounded” railway transportation system.

Norm Hall, a Saskatchewan farmer and president of the Agricultural Producers Association of Saskatchewan (APAS), said the vast majority of farm groups and agricultural shippers in Western Canada have indicated to Ottawa that they oppose any changes to the MRE program.

Giving shippers the option to voluntarily withdraw from the MRE program would weaken a freight rate control mechanism that is important to the industry.

He said freight rates and service standards on unregulated Canadian railway routes support the notion that deregulation does not result in better service, only higher transportation costs.

“Paying the railroads more money does not guarantee better service,” Hall said.

Removing containerized grain from the MRE program is an idea that has no merit, he added.

Lynn Jacobson, an Enchant, Alta., farmer who serves as president of the Alberta Federation of Agriculture, offered a similar view when asked about the CWF recommendations on MREs.

“The only way we’ve ever been able to deal with the railways is with regulation,” Jacobson said.

“And the regulation, to a large extent, emulates what competition (in the rail sector) would maybe give us.”

Jacobson suggested that nearly every farmer would be opposed to taking containerized grain out of the MRE program.

In its executive summary, the Canada West Foundation report concludes that western Canada’s rail transportation system is working well, despite well-documented challenges that affected rail service and grain movement in the winter of 2013-14.

However, it goes on to suggest there is room for improvement.

The report made several other recommendations such as starting discussions on replacing government owned grain hopper cars, allowing more commercial agreements and dispute resolution mechanisms and better data collection and information sharing to improve logistics.

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