Canada rail
A policy is being considered is the ability to app;y reciprocal penalties between railway companies and their customers in their service level agreements.
Photo courtesy of Canadian Pacific. 
As the new year gets under way, Western Canadian farmers are facing major changes in the way their grain is handled.

It marks the second straight year of major changes in the country’s grain handling and transportation system, with the elimination of the Canadian Wheat Board in 2016 being the most significant.

This year the government in power, the Liberals, with Marc Garneau as Minister of Agriculture, is considering several new policies, which include:
  • establishing the ability to apply reciprocal penalties between railway companies and their customers in their service level agreements. Garneau said the federal government plans to introduce legislation in the spring that will allow producers and shippers to negotiate reciprocal penalties in rail contracts, something shippers and farm groups have been demanding for several years to better define “adequate and suitable service.”
  • improving access and timelines for Canadian Trans-portation Agency decisions;
  • addressing the future of the Maximum Revenue Entitlement and extended interswitching. Work with stakeholders to ensure there’s a proper balance in place — one that supports rail customers and delivers continued investments in the system, making a freight rail system that is even more competitive and efficient in the long term.
  • investing $10.1 million in transportation infrastructure to help eliminate bottlenecks.

Most recommendations have been taken from an extensive report by former Prime Minister Paul Martin, following the severe winter of 2013-14 that slowed the transport of grain by rail or truck.

Canada’s grain transportation system has been a dominant policy concern among western farm groups for years, with producers and shippers worried the system’s susceptibility to backlog was putting Canada’s global reputation as a reliable shipper at risk.

Demands for a long-term, sustainable solution were constant, with farmers regularly raising the matter with MPs in Ottawa and in their home districts.

But, while many farm groups welcomed Ottawa’s latest promises, some took a cautionary tone. Western agriculture ministers warned that the devil will be in the details — especially since the transport minister has not said how he plans to deal with two other controversial issues on the same file: the maximum revenue entitlement (MRE) on what railways can charge to ship grain and extended interswitching, which allows one railway limited access to a competing railway’s track.

Garneau has said decisions on those will be made by this spring and presented at the same time as the pending legislation on reciprocal penalties.

The 2015 Emerson report recommended the MRE be phased out within seven years. The recommendation was welcomed by Canada’s major railways, which insist the policy stifles innovation. Farm groups argue the rule protects farmers from being overcharged for grain shipping because of lack of rail competition.

Emerson also advised Ottawa to end a 2014 decision to extend interswitching distances — a move Canadian National Railway and Canadian Pacific Railway argue has complicated grain movement. Farm groups say the practice has increased competition.

Parliament extended the Fair Rail for Grain Farmers Act in June for the 2016-17 crop year. The year-long extension was granted to give Garneau time to review his plans for remaking Canada’s grain logistics system.

Not all farmers in Western Canada concur with Ottawa’s plans.

||| The National Farmers Union's Position, next page |||

NFU’s Position

Canada harvest
Annual grain production in Canada has been on the rise, putting more pressure on the transportation system. 
Photo courtesy of G3 Canada Limited, previously known as CWB.
In a response to a Canada Transportation Agency questionnaire, the National Farmers Union, which is one of several farm groups opposed to the plan, gave the following answers:

Q: Do you see a continued need for the Government of Canada to set minimum volume requirements for the movement of western grain by rail?

A: Yes. Grain is a captive shipper, and without regulatory requirements to ship grain the railroads will move non-captive commodities first. Non-captive commodities are those that can be shipped by truck or air freight instead. Grain transportation always has been regulated because the unregulated behavior of railway oligopolies is contrary to the public interest. Farmers are not recognized as shippers under Bill C-30, yet it is farmers who pay the price of transportation problems. Railways continue to charge freight rates, and grain companies transfer the costs of storage plus demurrage — and then some — to farmers in the form of wide basis (the difference between the published futures price and the price paid to the farmer at the country elevator). A central authority, in conjunction with the Canadian Grain Commission, is needed to balance the power between the thousands of individual farmers who rely on the grain transportation system versus the railway duopoly and the multinational grain companies that dominate the grain trade in Western Canada. Without a central authority regulating grain movement, railroads and grain companies will behave in a self-interested manner — indeed they have a common incentive to underperform and thereby obtain a greater share of the wealth produced on prairie farms by charging excessive rates to farmers. To date, rail companies have borne the brunt of negative public opinion while grain companies have quietly gained unprecedented profits by exploiting the system failure.

Q: Are the current levels established by Order in Council (OIC) a good starting point for the establishment of possible minimum levels going forward?

A: The current minimum levels are not adequate, as can be seen by the disproportionate difference between prairie grain prices and grain prices at port. If grain was moving efficiently, prairie grain prices would be at minimum the port values less total handling and transportation costs. Today the gap between country elevator prices and tidewater prices is wider, indicating that railroad companies and/or grain companies are capitalizing on the system’s inefficiencies. The Statistics Canada Seeding Intentions Survey is not capable of doing the job required. We know this from the 2013-14 crop year when the survey’s predictions proved so wrong.

Q: What is your estimate of the maximum sustainable capacity of the grain handling system by port destination? Has this estimate been achieved in the past.

A: The question of capacity of the grain handling system by port destination is a matter of public interest for Canada. The maximum sustainable capacity is a vague concept, as we do not know how “sustainable” is being defined. In the 2013-14 crop year, port terminal capacity frequently went unused while vessels waited in the harbor. Lack of coordination among terminal companies may well be at the root of this inefficiency, as each company sought to maximize its own private benefit at the expense of the greater good — that being efficient movement of grain from country elevator to a waiting vessel. This failure shows that port terminal capacity was under-utilized, and thus defining maximum sustainable capacity should not be left to private grain companies seeking their own benefit.

Q: The agency has been asked to provide the Minister of Agriculture with advice on a monthly basis. Would expected traffic demand in other corridors (e.g. U.S. and Eastern Canada) in the winter months be sufficient to compensate for the shutdown at Churchill and Thunder Bay? What is a reasonable amount of traffic to expect railway companies to maintain during the winter months when the ports at Thunder Bay and Churchill are closed?

A: A uniform volume moved in each month of the year is not as important as making sure that grain moves smoothly and efficiently when it does move and that sufficient capacity exists and there is certainty that it will be used to move the whole crop in a timely fashion. The crisis that developed this year not only caused unnecessary economic losses but also took a steep human toll, as many farmers feared they would not be able to sell a single bushel while knowing that loans needed to be repaid and the cost of seeding next year’s crop loomed.

Q: What is your organization’s assessment of service since minimum volume targets have been set for the railway companies? Have you noted an improvement in the delivery of cars since the OIC has been in place? Have the minimum volume requirements resulted in unintended effects?

A: Farmers are reporting highly inequitable treatment by grain companies, with delivery opportunities being offered or denied to farmers on the basis of other commercial relationships.

Complaints about cars not being spotted properly or on time are dwindling, primarily because the large grain companies are controlling the movement of more of the grain fleet, said Jeff Edwards, assistant vice-president of service design and car management at CP. Roughly 75% of Cap’s fleet is now being moved by dedicated trains and more are coming on stream as the new company, G3, is planning to operate a dedicated fleet.

The company operates the train under a contracted agreement that gives the company access and control for a set number of trains during the crop year.