Federal legislation aimed at improving rail service for the western Canadian grain industry is receiving mixed reviews this week.
Some industry stakeholders are praising The Fair Rail for Grain Farmers Act, suggesting it will increase supply chain transparency, enhance railway competition and ensure that more prairie grain is moved to market in a timely manner.
Others are calling Ottawa’s efforts a step in the right direction but they caution that the true impact of the proposed legislation will remain largely unknown until regulatory provisions within the bill are more accurately defined.
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Still others say the bill does not go far enough to solve a supply-chain schmozzle that has already cost the industry billions of dollars.
As expected, reaction from railway industry has been negative.
Officials at Canadian Pacific Railway declined to comment March 26, saying they were still assessing the proposed legislation.
Officials with Canadian National Railway called the bill heavy-handed and intrusive, saying if it is passed, it will drain traffic away from Canadian ports, reduce investment, eliminate jobs and subject CN’s business to “unfair poaching by U.S. railways.”
“CN is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control,” said company president Claude Mongeau.
“The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future. We also have deep concerns about the potential consequences of the government’s proposed new (railway) interswitching rules.”
The Fair Rail for Grain Farmers Act was introduced to Parliament March 26 by federal agriculture minister Gerry Ritz and transport minister Lisa Raitt.
The complex bill is intended to address supply chain constraints that have delayed grain shipments across the West, damaged Canada’s global reputation as a reliable supplier of grain, and cost the industry billions of dollars in demurrage, lost marketing opportunities and discounted domestic commodity prices.
The main components of the legislation include:
• provisions that will expand railway interswitching within a defined area of 160 kilometres from interswitch locations, up from 30 km currently. Interswtiching is a process that allows one railway company to solicit business by using a portion of another company’s tracks;
• amendments to the Canada Grain Act (CGA) that will allow the Canadian Grain Commission to regulate the terms under which grain companies are required to pay farmers for grain that has been contracted but cannot be delivered due to limited elevator capacity, poor rail service or other factors;
• measures that enshrine Ottawa’s ability to set minimum grain movement targets, stipulating how much grain must be moved by each of Canada’s major railway companies in order to avoid fines as high as $100,000 per day and;
• amendments to the Canada Transportation Act (CTA) that will give the Canada Transportation Agency more power to regulate certain elements in arbitrated service level agreements between shippers and rail companies.
In addition, existing targets requiring Canada’s major railway companies to move one million tonnes per week will be extended until the end of the 2013-14 crop year.
Ottawa will also collect more performance data from Canada’s major railways and will accelerate its review of the Canada Transportation Agency.
That review was originally scheduled to take place no later than June 2015.
The legislation does not propose any changes to railway revenue caps that currently limit the amount of revenue that railway companies can generate from moving each tonne or grain.
If passed, the bill would remain in effect for two years from the date of passage but could be extended with parliamentary approval.
“This legislation creates the necessary tools to help ensure Canadian shippers have access to a world-class logistics system that gets their commodities to market in a predictable and timely way,” said Ritz. “Farmers and our economy need a system that works today and tomorrow, with the capacity to move what is grown.”
The Western Canadian Wheat Growers Association, frequently supportive of Ottawa’s farm-related policies, were among the first farm groups to weigh in on the legislation.
In a March 27 statement, the WCWGA said that while the bill contains some positive elements, it does not go “nearly far enough to address the serious breakdown in grain shipping capacity on the Prairies.”
“These measures do not adequately tackle the backlog in grain shipments,” said WCWGA president Levi Wood.
“They also do not position our industry to meet the long-term needs of prairie farmers or our customers.”
Wood said WCWGA members were disappointed that minimum grain shipping requirements will remain fixed at one million tonnes per week until the 2014-15 crop year.
“Grain prices to farmers will remain artificially depressed until the backlog is cleared up and the elevator system has the capacity available to offer competitive bids for our grain,” said Wood.
“As long as the elevator system remains plugged, price offers to farmers are likely to remain below market value.”
Elevator companies also offered a measured assessment.
Wade Sobkowich, executive director of the Western Grain Elevators Association, said the bill appears to contain some positive elements but its full impact won’t likely be known until more regulatory details are added.
Provisions pertaining to the Canada Transportation Agency’s expanded role in regulating service level agreements will be critically important, Sobkowich said.
But for now, those regulatory powers remain undefined.
Provisions in the act may require grain companies to pay farmers for contracted grain that cannot be delivered to country elevators by the prescribed delivery date.
Those provisions could help to address cash flow problems affecting prairie farmers that can’t deliver grain to plugged prairie elevators.
However, the same measures could have huge financial implications for grain companies that currently have no control over the level of rail service that they receive.
“This will have to be linked to the regulatory process for service level agreements,” said Sobkowich, whose association represents major grain handling companies.
“Grain companies don’t have control over how much capacity they get and they don’t have control over when they get those cars.”
Sobkowich said regulations that dictate when an elevator company must pay farmers place added emphasis on the need for service level agreements that allow grain companies to collect penalties from the railways that don’t provide the rail capacity that was promised.”
Both Wood and Sobkowich said the proposed expansion of interswitching is likely to have a positive impact on service, especially in areas that are serviced by only one railway company.
NDP agriculture critic Malcolm Allen and Liberal agriculture critic Ralph Goodale offered similar assessments on interswitching but said the overall impact of the legislation will be determined by the regulations that are created after the bill is passed.
“For the most part, (the bill) simply authorizes the government to create future regulations …,” Goodale said.
“We have asked the government and we’ll ask them again, where are the regulations, because the act itself doesn’t mean a thing until you know what the regulations are.
“Until we see the draft regulations, it’s sort of like buying a pig in a poke. You just don’t know what’s there.”
“The big concern that we have is the regulatory framework,” added Allen.
“What will it be, when will we see it and will it be done quickly? There’s no indication that they’re taking speed into account here to try and get it done … so we’ll see how that evolves over time ….”
The act was expected to be fast-tracked through second reading today.
If that happens, the bill will likely be sent to the committee stage early next week, where potential amendments will be considered.
