Farm organizations are renewing calls for a railway costing review after the Canadian Transportation Agency approved an eight percent increase in rail rates for grain.
The increase was announced April 24 and takes effect Aug. 1, in time for harvest.
After the increase, a producer near Saskatoon who moves 1,300 tonnes to Vancouver will pay $58,900 for shipping, an increase of $4,300, according to a coalition of farm organizations that want the costing review.
In the 2007-08 crop year, the same producer would pay $54,600 for freight.
Ian McCreary, a Canadian Wheat Board director who farms near Bladworth, Sask., said the hike is out of line with what it actually costs Canadian National Railway and Canadian Pacific Railway to haul grain to port.
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Both railways claim efficiencies by running fewer but larger trains. They also employ fewer people than they used to.
Still, they were able to obtain the increase under a formula that takes higher fuel prices and labour costs into account, he said.
“It underscores what I call the public policy imbalance,” McCreary said.
The coalition of farmer organizations, including the Canadian Federation of Agriculture, National Farmers Union, Wild Rose Agricultural Producers, Agricultural Producers Association of Saskatchewan and Keystone Agricultural Producers, had called for a costing review after a report commissioned by the CWB was released March 25.
The report, by John Edsforth, concluded that CN and CPR made $100 million more in profit from moving grain than they would earn in a competitive marketplace.
Edsforth said the revenue cap is indexed for inflation but doesn’t take productivity gains into account. He called for changes to the calculation and also said a costing review could save farmers more than $8,000 annually.
“We all know fuel prices have increased, but we don’t know the railways’ actual fuel costs or consumption levels for grain transportation or how they’ve changed since 1992,” said CFA president Bob Friesen in a news release.
The cost assumptions used in the volume-related composite price index, which determined the increase under the revenue cap, are based on 1992 levels.
Shippers argue that while some of the railways’ costs have gone up, others have disappeared. For example, the railways serve only 370 elevators compared to 1,500 in 1992.
McCreary said it’s not legitimate to inflate costs that the railways no longer have.
“They’ve become very clear they’re more efficient,” he said. “We’re paying higher freight rates now and we have worse service than in 1995.”
The farmers’ dispute is not with the CTA, he added, since the law is clear as to how the agency must calculate the price index. McCreary said the law is ineffective.
APAS president Glenn Blakley called the formula flawed and said a costing review must be done as soon as possible, preferably at the same time as the level of service review contained in Bill C-8.
Federal transport minister Lawrence Cannon recently published the proposed guidelines for that review. Shippers have until May 11 to respond.
Blakley said it makes sense to do both reviews when everyone is at the table. He noted that farmers pay 60 percent more to ship than potash companies do, yet both ship a bulk product to the same ports.
“There hasn’t been anybody monitoring the ability of the railroads to charge that exorbitant rate,” Blakley said.
McCreary said federal agriculture minister Gerry Ritz has said he supports both reviews taking place simultaneously. Transport Canada officials have taken another view.
Even if the review took 18 months to complete, it would still be better than the one that currently exists, McCreary added.
“We have been making this point for eight years,” he said.
The coalition urges farmers to send e-mail postcards to Ottawa requesting the costing review. The postcards are available through the CFA and CWB websites.
The railways have said a costing review is not necessary and would represent a return to regulation and a move away from commercialization.
CN spokesperson Mark Hallman said the company was pleased the CTA recognized that higher input costs contribute to its ability to provide service.
“Clearly fuel prices are at record highs,” he said, noting the long distances that railways transport grain.
He said Canadian rail rates remain among the lowest in the world and are “significantly less than in the United States.”
Hallman also said an earlier CTA decision that reduced the railways’ entitlement under the revenue cap, retroactive to Aug. 1, 2007, turned grain into its least profitable commodity. Yet, CN has made substantial improvements in grain logistics, he said.
