The federal government shouldn’t make any decisions about the grain transportation system without conducting a thorough review of railway costs, says Saskatchewan Wheat Pool.
The company issued its call for a formal costing review following the annual spring meeting of pool delegates in Regina last week.
Pool president Leroy Larsen said the government can’t decide the future of the maximum freight rate cap without first getting a complete picture of railway costs.
“We are saying that a lot of efficiencies have been captured and retained by the railroads under the current system, since the last costing review,” he said in an interview.
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federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
Logical decision
Larsen said it is time for transport minister David Collenette to establish a review process that will allow him to make a decision based on “sound economic analysis and logic.”
Railway costing reviews were carried out every four years under the old Western Grain Transportation Act, which was repealed in 1995. The last such review was conducted in 1992.
Since then, an annual maximum rate scale has been in place, based on annual changes in railway costs.
The report by Willard Estey recommends doing away with the cap in return for a railway guarantee to reduce the total freight bill by a certain amount over a specific period.
But Larsen said the Estey report does not contain enough detailed analysis or information for the minister to make an informed decision.
Since the Canada Transportation Act requires the government to review grain freight rate legislation before the end of 1999 anyway, it makes sense to expand that to include a costing review.
“To do a proper analysis of the cap there should be a costing review, and that will help determine the need or not for a cap,” said Larsen.
He added that delegates attending the spring meeting made it clear that no matter what the outcome of the review, the rate cap should remain until there is proven competition between railways, leading to lower costs for producers.
During their two-day meeting, delegates heard a presentation from Ian McCreary, chair of the Canadian Wheat Board’s transportation committee, on the board’s alternative plan for reforming the transportation system.
Productivity gains
In that plan, the board also calls for a review of railway costs, saying that the rail companies have had a 14 percent benefit from productivity gains since the last costing review.
On a total freight bill of about $1.2 billion per year, that means farmers are paying $168 million, or about $5 per tonne, more for freight than they would if there were regular costing reviews in which productivity gains resulted in lower freight rates.
Larsen said the pool’s policy positions fit well with the CWB’s action plan, adding the pool will participate in transportation meetings being organized by the board over the next couple of weeks.
