Recent changes to the grain handling and transportation system,
including the introduction of commercial tendering for grain movement,
are putting millions of additional dollars into farmers’ pockets, says
the Canadian Wheat Board.
The savings totalled $10.7 million in the 2000-01 crop year and $3.3
million in the first three months of the current crop year, for a total
of $14 million.
The agency said those savings, which are being passed back to farmers
through the pool accounts, are a direct result of increased competition
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among grain companies and railways for wheat board business under the
new rules.
And it says it expects to see even more dollars flow back to farmers as
it continues to learn how to use the system to their benefit.
“As long as all the players want to act competitively and in fact do so
… and as long as we continue to provide them with the opportunity to
compete with each other, then I have no doubt that (freight) prices
will continue to go down,” said wheat board chair Ken Ritter.
He said the board isn’t yet satisfied that farmers are reaping all the
benefits they could from the changes, especially when it comes to
sharing in productivity gains realized by the railways.
But he said there’s no question the changes agreed to with the grain
handling companies last year are paying off.
“I ask myself what would have happened without that agreement,” he
said.
“I think there was a straight-line path towards greater costs for
elevation and handling, terminal charges and rail freight costs.”
Instead, besides the $14 million in savings, freight rate increases
were scaled back, farmers gained some savings from reduced rail costs
and trucking premiums have remained largely unchanged.
The board said the $14 million savings come from three sources:
commercial tendering of grain handling and transportation; freight and
terminal handling rebates paid to the wheat board for meeting
volume-related grain movement targets; and financial penalties levied
against grain companies for failing to meet transportation commitments.
The board declined to say how much of the $14 million came from each
source, citing commercial confidentiality.
Under last year’s changes, the board is required to offer commercial
tenders on 25 percent of its grain shipping program.
Tender values are expressed as a certain amount of money below or above
the initial payment in-store at Vancouver or the St. Lawrence, which
reflects the amount of money below or above the posted freight rate at
which the company is prepared to move the grain.
In the first three months of the current crop year, the board accepted
bids on the movement of 13,552 rail cars, with tenders ranging from
$13.06 per tonne under the in-store initial payment to $2.50 above.
Only a small number of cars moved above the posted freight rate. That
would happen in cases where grain companies faced high costs in
gathering or shipping particular types of grain.
Tenders are awarded on the basis of the lowest price, the ability of
the bidder to consolidate grain stocks in three or fewer terminals, and
a company’s track record in executing tenders.
While the tendering system has saved money for farmers, a board
spokesperson said that doesn’t necessarily mean the agency will go
beyond the required 25 percent this year.
Not all types of grain shipments would produce savings through
tendering, said Rheal Cenerini.
“There are a lot of commercial conditions coming into play that
determine what is tendered or not,” he said. “It’s a dynamic situation
and balance has to be achieved (between tendered and non-tendered
movement).”
The tendering system has resulted in a shift in market share among
grain companies, favouring those whose systems are better able to take
advantage of freight incentives, enabling them to be more aggressive in
bidding on tenders.
The board has received complaints from companies that have lost market
share, but said that’s a function of the marketplace over which it has
no control, he said.
“Generally we’d like to see as many players as possible competing, but
our primary concern by far is farmers’ interests and how well they’re
doing,” Ritter said.
