By itself, it won’t send any farmers into bankruptcy.
But a small increase in freight rates effective Aug. 1 will take some much-needed dollars out of grain producers’ pockets at a time when they can ill afford it.
The Canadian Transportation Agency last week announced an increase of 0.2 percent in the maximum freight rate scale for the 1999-2000 crop year.
Farmers will pay an average of $34.45 a tonne to ship their grain to export position. That is up seven cents a tonne from this year’s average rate of $34.38.
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The so-called average rate represents a haul of about 1,670 kilometres, or roughly the distance from central Saskatchewan to the West Coast.
That means a farmer from around Moose Jaw, Sask., shipping 1,000 tonnes of wheat to Vancouver will have to pay about $70 more in freight costs next year.
Some farm group officials say the rate increase highlights the need for a complete review of railway costs to ensure farmers are receiving the benefits of efficiency gains made by the railways since the last such review was conducted in 1992.
“Rates are going up by 0.2 percent at a time when they should be falling by about two percent a year,” said National Farmers Union spokesperson Darrin Qualman. “An immediate adjustment in that freight rate would be very, very welcome.”
He said it would be an ideal way for the federal government to provide financial assistance to hard-pressed grain producers without spending a penny of taxpayers’ money.
Bill Morningstar, a director with Keystone Agricultural Producers, said while nothing could be done to avoid the increase given the legislated formula used by the CTA, that doesn’t make it any more acceptable for producers.
“Legally, according to the Canada Transportation Act, this is exactly how it has to be done,” he said. “But as far as the farmer is concerned, he’s getting screwed in the ear.”
The railways have realized significant savings in labor and rail abandonment that aren’t reflected in the formula used to adjust the maximum rate each year, he said.
Independent economists have estimated those savings to be in the range of $150 million a year, while the Canadian Wheat Board pegs it closer to $200 million.
Morningstar said the CTA was written essentially to return the railways to financial health, and it’s been successful.
“Now that they’re flying high and making millions, most of it is coming right out of the western Canadian grain farmer,” he said. “That’s not bad if we’re making a buck, but we’re not making a buck any more.”
Morningstar said CTA officials he has spoken with agree privately that the statutory formula benefits the railways at the expense of producers, but they would never say so publicly.
Jim Riegle, senior rail rate costing officer with the CTA, acknowledged that the formula used by the agency to set the rate scale each year does not take into account railway productivity gains, other than a small adjustment for some branch line abandonment savings.
But he declined to comment on whether that formula should be changed, saying it is a decision for politicians and policy-makers in Transport Canada, especially in the context of the grain transportation review.
“We just take the policy and implement it,” he said.
The act sets out a series of maximum rates based on 40-kilometre intervals, using the 1995-96 rate as the base line.
Each year the agency uses a so-called “freight rate multiplier” to adjust that rate scale to reflect the impact of inflation on the railways’ 1992 costs of labor, fuel, materials and capital inputs, and also to pass back to farmers a portion of the savings gained by the railways through the abandonment of grain-dependent branch lines.
This year the volume-related price index rose by 0.4 percent, mainly due to higher fuel costs. However, that was offset by a reduction of 0.2 percent to reflect savings from abandoning rail lines.
