Canadian grain rail system reform

by Teresa Acklin
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Payments to producers will replace railroad subsidies.

   anadian Agriculture Minister Charles Mayer has unveiled a comprehensive plan to reform the Canadian grain transportation system.

   The reform, which would require amendments to four acts of Parliament, has been tabled as draft legislation in the House of Commons. Debate should close by the end of the year, and the government hopes to implement the reform next year.

   The proposed legislation contains four key elements:

   1. Existing subsidies paid to railroads to facilitate grain transport from the Prairie provinces to market or to export position would be phased out over four years. The railway subsidies would be replaced by payments to producers.

   2. Railroads would be allowed to abandon certain low-density, high-cost, grain-dependent branch lines, and a fund would be created for alternate transportation for grain of affected farmers during a transition.

   3. Railroads would be given greater freedom to offer lower rates to producers to encourage them to move grain more efficiently, for instance, in larger blocks of railcars. Flexibility to offer lower rates also should help Canadian railroads to remain competitive with other transportation modes, possibly including U.S. rail carriers, during and after the four-year transition.

   4. Port neutrality would be provided through the removal of biases in the current freight rate scale and payment method, both of which have favored some routes or ports, or both. The freight rate structure would retain the principle of generally distance-related rates.

   Currently, the Canadian government pays a subsidy to the railroads amounting to C$650.7 million (U.S.$507.5 million) a year to cover most of the costs of hauling grain to market or to ports. Under the reform plan, the railroad subsidy by crop year 1997-98 would be discontinued, and producers would begin to receive annual transportation subsidies totaling C$565.4 million.

   The C$85.3-million difference between the railroad and producer subsidies in any given year would include a special fund for alternate transportation services for producers along branch lines that railroads would abandon under the reform. Payments under this fund would be reduced over time, with net savings divided among all producers in the form of higher individual transportation subsidies. Railroads would be allowed to raise their freight rates in line with the transfer of the subsidy to the producers.

   The reform proposal has provoked criticism from U.S. legislators and Canadian producer groups, for different reasons.

   The U.S. contends that transportation subsidies, whether delivered to the railroads or producers, give Canadian producers and grain handlers an unfair advantage over their U.S. counterparts, who bear the full burden of transporting grain to market.

   Some Canadian producer groups have alleged that, under the plan, transportation rates would be allowed to rise while the transportation subsidy would decline in value. The other aspect of the plan that has raised the ire of some Canadian producers is the proposal calling for lifting government protection of certain low-volume, grain-dependent railway branch lines.

   Agriculture Canada has indicated it is no longer possible to continue to finance upgrades of low-volume lines. Removing 34 low-volume branch lines, which represent 25% of the grain-dependent rail network but carry only about 7% of the total Prairie grain output, would save an estimated C$27 million a year, according to a study by the Senior Grain Transportation Committee.