THE past three years of having grain companies bid on rail cars have paid off for farmers, at least in the short term.
But the Canadian Wheat Board and elevator companies are now wrestling with the question of what is better for the grain handling industry over the long term.
Grain companies and the CWB have operated under a memorandum of understanding that has seen grain companies bid on rail cars to deliver farmers’ grain to ports. Fifty percent of cars for exported grain were bid on in the current crop year and 25 percent in the two years before that.
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Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
By the CWB’s accounts, recent changes to the rail delivery system netted farmers about $40.9 million in the last crop year and $21.5 million for the first nine months of this season. The board says incentives for rail movement, a new program that increases farmers’ influence over the allocation of rail cars and financial penalties for missing performance targets were also responsible for some of the savings.
The board refuses to say how much it saved through tendering alone, citing commercial confidentiality. However, it is clear tendering has been positive for producers’ bottom lines.
The catch is that some grain companies are complaining that tendering is hurting them. Independent terminals in particular say they cannot compete with rates offered by large grain companies.
They raise valid concerns. If competing terminals are not able to win bids for rail cars, then farmers’ delivery choices could be reduced.
Over the long term, if some competing terminals were driven out of business, would the remaining companies be as aggressive in their bids? As well, farmers could be forced to deliver to elevators with available cars instead of locations that offer the best prices.
The CWB appears to be trying to strike a balance between tendering and ensuring competition between grain companies. It proposes to scale back tendering to an undisclosed level. The board also wants to set up a working group to study new proposals before the grain-hauling year begins.
That time frame is short indeed.
Perhaps the existing tendering format should be given time to work in a normal crop year because drought has seriously reduced grain volume in the past two years. The existing plan would see 50 percent tendering this year.
While regulations are not intended to keep inefficient operators in business, they are designed to ensure fair and aggressive competition. Whether that can happen with only four or five large companies is an issue of hot debate.
Meanwhile, the CWB is the only party situated between grain companies and farmers. As such, we respect its desire for a review to ensure farmers reap the most benefit possible from the current tendering system.
However, by doing so, we must be certain that more costs and inefficiencies don’t make farmers the losers in the end.
