Canadian farmers need to get back a piece of the Western Grain Transportation Act to control the costs of shipping grain, said an author of a report on Canada’s railways.
“Each year the revenue cap gets indexed upward for inflation, but there’s no consideration taken of productivity changes,” said John Edsforth, who prepared a report on the railways’ earnings for the Canadian Wheat Board.
In his report, released March 25, Edsforth concluded that Canadian Pacific and Canadian National are making $175 million more in profits from moving grain than what could be earned in a competitive market. They are achieving those earnings, he said, because improvements in railway efficiencies are not included in federal regulations.
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“I think there should be a revision to the revenue cap concept, where some account is taken of productivity changes,” said Edsforth, president of Travacon Research Ltd. in Seattle, Washington.
The revenue cap, instituted in 2000 and overseen by the Canadian Transportation Agency, is still a good idea, Edsforth said.
But it was set in 2000, to provide a contribution of 27 percent toward the railways’ volume-related operating costs for moving grain, which includes train crew wages, diesel fuel and days of freight car use.
By the 2006-07 crop year, that contribution had risen to 53.9 percent, according to Edsforth’s calculations.
“It was never intended to produce contributions of 60 percent,” said Edsforth, who worked for CPR for 12 years when he lived in Montreal.
The WGTA legislation included a review of the railways’ productivity gains such as fewer elevators and less track. Those efficiencies were incorporated into a costing review done every four years, Edsforth said. But that practice stopped when the WGTA was repealed in 1995.
“That feature was not put into the successive legislation,” he said.
“As a consequence we’ve had the escalating contributions.”
The wheat board, along with federal and provincial farm groups, says it has seen enough large profits for railway shareholders made on the backs of farmers.
The Canadian Federation of Agriculture, the National Farmers Union, Agricultural Producers of Saskatchewan, Wild Rose Agricultural Producers and Keystone Agricultural Producers are all calling on the federal government to do a full review of the railways’ costs.
Wheat board director Ian McCreary said a review is needed to bring all evidence forward.
“We want to present the full picture to policymakers to show them the imbalance between those who use rail service in Canada and those who run it,” he said, during a news conference March 25 at a grain elevator near Winnipeg.
McCreary referred to a February ruling by the Canadian Transportation Agency.
The agency decided that Canada’s two major railways were overcharging farmers $72 million for rail car maintenance. Subtracting that from the $175 million in excess earnings, based on Edsforth’s report, still leaves a gap of $100 million that must be investigated, McCreary said.
“If they’re off $72 million for car maintenance … how far are they out of line in the rest of their operations?”
Joining McCreary at the media event were Ian Wishart, KAP president, Bob Friesen, president of the CFA, and Terry Boehm, NFU vice-president.
Boehm said railway regulations are essential, because CN and CPR have “geographic monopolies” in Western Canada.
“As farmers, we’re really captured by one railway or the other,” he said. “That’s why tools to mimic competition (are needed).”
Although he was hired at the behest of the wheat board, Edsforth said he understands the railways’ position.
The revenue cap, he said, is a unique regulatory tool in North America, which limits what Canada’s major railways can earn.
“And CN and CP don’t particularly like it,” he said. “And I’m sure when the wheat board talks about doing a costing review, there will be howls of anguish from both CN and CP.”
