Transport minister slams door on rail costing review

Prairie grain farmers who have been holding out hope for a full rail freight costing review probably shouldn’t hold their breath for too much longer.

The federal government has no intention of conducting a costing review, according to a letter from federal Transportation Minister Marc Garneau to the Saskatchewan Wheat Development Commission.

SaskWheat received the letter last July and shared it with wheat producers earlier this month during the commission’s annual general meeting in Saskatoon.

“A costing review that aims to further lower the maximum revenue entitlement (MRE) would not advance our objective of promoting network efficiency and investment over the long term,” Garneau’s letter said.

“As it stands, grain is the only commodity subject to freight regulation, and freight rates for grain are already among the lowest of all commodities.”

SaskWheat chair Laura Reiter said the commission will “continue to advocate for wheat producers in the area of transportation as Bill C-49 is implemented.

“This will include continuing to advocate for a rail costing review.”

Rail freight rates have been a stick in the craw of prairie grain producers for some time.

During the last federal election campaign in 2015, members of the Liberal party led by Justin Trudeau promised that a rail costing review would take place before any changes were made to the MRE program.

Since then, the Liberal government has introduced legislative changes aimed at improving rail transportation through the Transportation Modernization Act.

However, the promise of a railway costing review has never materialized.

In late 2014, a coalition of prairie farm groups, including the Agricultural Producers Association of Saskatchewan and SaskWheat, submitted recommendations to the Canadian Transportation Act review panel suggesting that a full rail costing review be initiated to determine the actual costs of moving Canadian grain to export position.

The groups also recommended that appropriate adjustments be made to the MRE formula, based on the review’s findings.

Those recommendations were supported by a 2015 report, commissioned by SaskWheat, APAS, Saskatchewan Pulse Growers and the Saskatchewan Barley Development Commission.

The 2015 report, produced by U.S.-based Travacon Research, suggested that in the 2013-14 crop year alone, Canada’s two largest railway companies earned $322 million, or $8.36 per tonne in excess of a cost-plus-20-percent net earnings cap that was deemed fair and adequate by the CTA when MREs were introduced in 2000.

The report estimated cumulative excess revenues earned by the railroads from 2008-2014 at $2 billion.

Supporters of a rail costing review argue that excess revenues earned from grain movement are a direct result of productivity gains that are being fully captured by railway companies.

Actual costs for moving grain by rail have not been fully reviewed since 1992.

“Since then, elevator consolidation, siding closures and the trend towards multi-car blocks have created efficiencies that would — under effective competition — translate into lower freight costs for producers,” the commission said in a 2015 news release.

Through the Transportation Modernization Act, modifications have been made to the MRE formula to encourage railway investments.

Among the most notable since the passage of the legislation is the acquisition of new high-volume grain hopper cars by both Canadian National Railway and Canadian Pacific Railway.

Observers say that investment should result in more efficient grain movements that benefit farmers, shippers and railways.

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