New grain transportation rules announced last week are bad news for the grain industry, says the head of one of Canada’s major grain companies.
“I think it’s an unmitigated disaster, especially for grain companies,” United Grain Growers president Ted Allen said in an interview from his office near Calgary.
The lone bright spot is that farmers will get a short-term benefit from a reduction in freight rates under a new railway revenue cap, he said. But the rest of the package creates a system that is “designed to fail.”
Read Also
Stock dogs show off herding skills at Ag in Motion
Stock dogs draw a crowd at Ag in Motion. Border collies and other herding breeds are well known for the work they do on the farm.
The big problem for grain companies, he said, is that the Canadian Wheat Board will continue to have significant regulatory power over the logistics of grain movement, and grain handlers will be denied the ability to manage their elevator systems as they see fit.
“It looks like the wheat board is going to be able to dictate most of the terms of the commerce,” said Allen.
“We will not be able to manage our own assets and derive the kind of efficiencies we need.”
Officials with two other major grain companies were more restrained in their criticism of the long-awaited package of reforms unveiled by the federal government May 10.
Officials with Saskatchewan Wheat Pool and Agricore said the announcement contained a lot of positive changes, such as providing immediate freight rate relief for farmers, improving the system of final offer arbitration to resolve disputes between shippers and railways, and putting money into rural roads.
But they also made it clear they’re uncomfortable with the unanswered questions about the future relationship between the board, the railways and the grain companies.
In particular, they’re unhappy with the government’s announced intention to work out the details of the new freight tendering system by negotiating a memorandum of understanding with the wheat board.
The grain companies want to be part of the process.
“We believe our company and companies like us should be involved in the details of how the understanding is put together,” said Agricore president Neil Silver.
“The industry in Western Canada has spent over a billion dollars on new assets in the last few years and deserves some input on how those assets are applied to what’s coming at us with this new announcement.”
Save millions
He said at least $100 million in additional savings could be achieved if grain companies were allowed to negotiate directly for all transportation through such things as reduced demurrage and storage costs.
The Western Grain Elevator Association, which represents the 10 major grain handling firms, also weighed into the debate, saying it is “unacceptable” for those negotiations to be restricted to the federal government and the wheat board.
It said grain handlers have devoted considerable time and effort over the last couple of years working with government and other stakeholders to devise a better system and shouldn’t be shut out of the process now.
“It is critical that these same industry participants now be involved in establishing the details of the new system proposed by the government,” said association director Ed Guest.
Wheat board minister Ralph Goodale said in an interview he expected the new policy would be criticized by those who have lobbied for a fully commercial system, including grain handling companies.
But he said the government had to reconcile a number of competing interests and viewpoints.
“It is a far more commercial, competitive and contractual system than has ever existed before,” he said, adding that the three-year monitoring process will allow everyone involved to see what works and what doesn’t and make changes accordingly.
However, Allen said that’s not good enough.
“I don’t think we have the luxury of that kind of time.”
Within three years he said, the new rules could have driven grain companies to the brink of financial ruin.
“Farmers are not well served by an industry that is financially crippled, especially an industry that they own or have large investments in.”
Allen also thinks the new system could create friction between the board and grain handling companies, perhaps speeding up the demise of the board’s role as the single desk exporter of wheat and export barley.
“I think there will be a much more adversarial approach, because the grain companies have all made major investments and they can’t afford to sit back and take it.”
