The end of the line
June 01, 1995
by Teresa Acklin
Canada to discontinue rail transport subsidies for grain.
On Aug. 1, the Canadian government will cease paying grain transport subsidies to railroads under the Western Grain Transportation Act. After that date, the full cost of shipping grain from the Prairie provinces to the ports or consumption centers will be borne solely by producers and secondary grain handlers.
The ending of the subsidy will mark the passing of an era of government support to grain shippers that began nearly 100 years ago and saw the emergence of Canada as a major grain producer and exporter. A post-W.G.T.A. Canada could be one in which many Prairie farmers elect to plant less grain in order to increase the production of higher value crops and livestock, some experts indicated.
The decision to kill the W.G.T.A. subsidy was announced as part of the federal government's budget on Feb. 27. The federal government in December 1992 already had begun to rein in W.G.T.A. payments when it announced a 10% reduction in funding for the subsidy, which had climbed to about C$730 million (U.S.$522 million) in 1991-92. The government subsequently proposed a further C$104-million cut for 1994-95, which was implemented by the new Liberal Party government under Prime Minister Jean Chretien.
In January of this year, Ralph Goodale, minister of agriculture and agri-food, indicated the government would go further and seek the elimination of the W.G.T.A. subsidy in any form, effective Aug. 1, as part of an effort to reduce the federal budget deficit and to comply with Canada's obligations to phase down export subsidies under the General Agreement on Tariffs and Trade.
While budgetary and trade considerations were paramount in the decision to discontinue the transport subsidy, the measure is designed to accomplish two additional purposes. First, it will help “create a less rigid and more responsive operating environment, in which a faster, lower-cost and more efficient systems may evolve, with the benefits of change fairly shared among farmers, shippers and the railways,” according to a report by Agriculture Canada, the country's agriculture ministry.
And second, the demise of the W.G.T.A. payment would “eliminate freight rate discrimination against value-added production and processing, diversification and economic growth,” the report said.
The government was expected to secure approval of legislation to implement the reform sometime in June, but it was known that the legislation would include five basic elements:
1 effective Aug. 1, the government will stop paying W.G.T.A. subsidies to the railroads;
2 there will be a one-time, C$1.6 billion (U.S.$1.14 billion) payout to compensate owners of Prairie farmland for the negative effect the termination of the rail subsidy will have on land values;
3 a six-year, C$300-million (U.S.$214.5 million) W.G.T.A. Adjustment Fund will be activated in 1996-97 to help Prairie agriculture adjust to the new economic environment;
4 Canada's rail regulatory framework will be revamped to encourage grain shippers and railroads to be more efficient; and
5 the government will provide new export credit guarantees on up to C$1-billion-worth (U.S.$715 million) of sales of grain or other agricultural commodities to private sector buyers around the world.
The new export credit guarantees will apply on sales of Canadian Wheat Board wheat and barley, as well as of other commodities, to foreign, non-government buyers. Currently, the Credit Grain Sales Program limits the C.W.B.'s credit sales to foreign buyers whose governments will guarantee the repayment of the credit.
The proposed Agri-Food Credit Facility would operate under the C.G.S.P. and would provide Canadian government credit guarantees to support export sales of up to C$700 million worth of wheat and barley and C$200 million worth of other food products and commodities. The remaining C$100 million in credit guarantees would be unallocated and could be directed according to market demand. The loans on which the guarantees will be provided will be extended to creditworthy buyers on commercial terms and will not exceed three years.
HELP DURING THE TRANSITION.
The six-year W.G.T.A. Adjustment Fund will help Prairie farmers, municipalities, businesses and railroads during a transition period beginning in 1996-97. The government indicated that the fund could help finance changes in the C.W.B.'s freight pooling system and the rationalization of high-cost branch lines.
It was expected that the elimination of the subsidy and the resulting sharp increases in freight rates for growers distant from both ports and railroad mainlines could result in some land being retired from production and some branch lines being abandoned.
Grain shippers will be accorded the protection and benefits due all shippers under the National Transportation Act. In addition, a maximum legislated freight rate scale will be implemented for moving Prairie grain by rail during a five-year transition period.
Access to N.T.A. provisions will result in more balance in rate negotiations and provide shippers with leverage to pursue lower rates based on volume, efficiency and competitive considerations, according to Agriculture Canada. To protect captive and smaller shippers, maximum freight rates will be regulated during a transition period extending through July 31, 2000.
Agriculture Canada said changes to the N.T.A. would be announced soon and legislation reforming transportation regulations soon would be proposed.
With the demise of the W.G.T.A. subsidy, the role of the National Transportation Agency in rate and payment matters will be eliminated except for the calculation of the adjustments to the maximum freight rates. The Grain Transportation Agency and Senior Grain Transportation Committee will be eliminated as legislated bodies, according to Agriculture Canada.
Current G.T.A. functions will be transferred, through agreements or legislation, to an industry-managed and funded agency. The new agency's functions will include allocating and coordinating railcars, encouraging improved efficiencies and facilitating the appropriate sharing of efficiency gains in the grain transportation and handling system. In the interim, all remaining regulatory functions, car allocation and port coordination that must continue will be provided by the government.
Policies related to car allocation, the disposal of government grain cars and the transportation functions of the C.W.B. are not being changed under the government plan, according to Agriculture Canada.
On Aug. 1, freight rates paid by producers will skyrocket throughout the Prairie provinces from C$10 a tonne (the cheapest rate on the Prairie) to as much as C$40 a tonne, according to some observers.
The Producer Payment Panel that had been established by Minister Goodale to advise the government on W.G.T.A. reform earlier had indicated that if the W.G.T.A. subsidy were eliminated, Manitoba farmers would take about 560,000 hectares out of crop production, and Saskatchewan farmers could retire 760,000 ha. The percentage of Manitoba farmland in pasture and forage could climb to 23% from the current 15%, while wheat production in the province could drop 23%.
In the case of Manitoba, there could be a massive switch from grain to livestock culture, speculated the Winnipeg Free Press. At the very least, the Prairie agricultural economy would become much more diverse and include more livestock production and oilseed production and processing, according to Agriculture Canada.