Western wheat farmers are calling for a review of the way the railway revenue cap is calculated after learning it will increase by 9.5 percent as of Aug. 1.
Kevin Bender, president of the Western Canadian Wheat Growers Association, said the proposed increases — announced April 30 by the Canadian Transportation Agency — represent an unwarranted freight rate hike that will directly impact western Canadian farm incomes.
The increases point to the need for a new revenue cap calculation formula that takes into account recent gains in railway efficiency.
In recent years, railway companies have boosted grain handling efficiencies by pulling longer grain trains, increasing rail car capacities and investing in new, more fuel efficient locomotives, the WCWGA argues.
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According to Bender, those gains should be reflected in freight rates.
“This (9.5 percent increase) represents a significant jump in freight rates,” he said.
“The government needs to re-view the components of the revenue cap and come up with a better approach to ensure that farmers are not hit with unwarranted freight increases.”
The railway revenue cap limits the amount of revenue that Canada’s major railway companies can earn from moving prairie grain to ports at Thunder Bay and the West Coast.
The Canadian Transportation Agency calculates it annually using a formula that considers borrowing costs, inflation, railway labour costs, fuel costs and capital investments.
The central element in the cap calculation formula is an index figure known as the Volume Related Composite Price Index (VRCPI).
The VRCPI for the 2012-13 crop year has been set at 1.2895, the highest level ever approved by the CTA and a 9.5 percent increase over 2011-12.
It is still not clear how the higher VRCPI will affect overall revenues at Canadian Pacific Railway and Canadian National Railway during the 2012-13 crop year.
Total revenues will depend on the amount of grain that is moved.
In 2010-11, CPR hauled 14.7 million tonnes of grain and had a revenue cap of $444 million.
CN hauled 16.44 million tonnes and had a revenue cap of $509 million.
