Despite recent improvements to rail transportation in Canada, farmers are still forced to rely on a largely unreliable system.
“Rail is the backbone of the economy, but it’s also the Achilles heel,” said Mark Hemmes, president of Quorum Corporation.
The 2016-17 crop year was one for the books. Despite a slow start, the system set records for total grain movement by rail, car cycle times, West Coast movement, and lowest-ever total time in the system.
But it’s a different story this year.
CN Rail has had challenges since last year, partly owing to the weather and congestion, but more because of a shortage of trains and a focus on other commodities. CP Rail initially maintained its fast pace but started to slide this month.
“We’re not seeing the performance this year that we saw last year,” said Hemmes. “Even so, we still moved a fair amount of grain, although we’re not setting any records.”
But with 80.5 million tonnes of grain to move — second only to the 81.9 million tonne bin buster seen in 2013-14 — producers (particularly those in the northern Prairies) are starting to get nervous.
“Farmers are having a hard time getting deliveries to the elevators,” said Hemmes. “As a result, things are starting to get congested right now.”
It’s a vicious cycle that points to systemic failings in Canada’s rail transportation system, said one analyst.
There’s been a heavy investment in port terminals and in-land grain-handling facilities, but not as much in the rail system, said Steve Pratte, manager of policy development for the Canadian Canola Growers Association.
“On the grain side, the companies have made those investments,” he said. “Now we’re really just trying to get the railway providers to respond on a more consistent basis.”
Canada’s agriculture industry could export roughly $75 billion in commodities annually, but poor rail service is a “known risk” both at home and abroad.
“It’s about how we can consistently and reliably, from year to year, execute on those contracts that are signed by the exporters and serve those markets globally that have access to other products,” said Pratte.
“If this cycle continues, it really affects our reputation in the global community,” Hemmes added.
Rail Transportation Act
It’s a major concern for Jeff Nielsen, who farms near Olds.
“We face a lot of competition in the world. There’s a lot of crop being grown out there,” said Nielsen, who is also president of Grain Growers of Canada.
“Those customers know that those other countries are out there, and if they get better service from them, why would they come back to us?”
The backlogs that are happening now — particularly in the north, where new contracts aren’t being issued until June — have given Nielsen flashbacks to the 2013-14 crop year when grain wasn’t moving at all.
“2013 was not a one-off. There have been other years where this was a problem,” he said. “I was caught by it then. I had a lot of contracts delayed, too. It was really frustrating.”
It also means reduced cash flow that can only push back input purchases for spring but also rent.
“Landlords don’t really care if you move the grain or not,” Nielsen noted.
Earlier this month, Nielsen joined a delegation of farmers, processors, and industry representatives in Ottawa to present these and other concerns at a Senate transportation hearing on Bill C-49, the Transportation Modernization Act.
Although the bill’s passage wouldn’t have necessarily changed the current situation, it would have an effect, said Pratte, who was also part of the delegation.
“The bill has a lot of good things in there that the grain industry — both shippers and producers — have been looking for, for years, things like reciprocal penalties and improved transparency,” he said. “Producers and shippers would like to know what the playing field looks like before the next crop year so they can start thinking about some of the tools that C-49 provides as they start to plan out their shipments and sales programs for 18/19,” said Pratte.
While the bill hasn’t given producers everything they wanted, reciprocal penalties will help keep the railways more accountable, said Nielsen.
“Hopefully, we’ll be able to see some better reaction from our railroads. If not, there will be penalties.”
But these changes to Canada’s rail transport system might not be enough to compete with heavy investments in infrastructure around the globe.
Over the past 15 years, Russia has increased its export capacity ninefold. In the past year alone, it shot up another 23 per cent. In Brazil, new rail connections are coming online, and the BR-163 highway is mostly paved now, allowing Brazil to transport grains more quickly to their northern ports. The Chinese ‘Silk Road’ will connect central Europe to China by rail, going through Russia, Kazakhstan, and East Asia.
“By 2021, they want to be able to transport all the way from Rotterdam into China for $10 a tonne. Think about what that means,” said Marlene Boersch, owner of Mercantile Consulting Venture.
“This is the trade environment that we’re increasingly facing.”
Canada isn’t expanding its capacity the same way. And that means missed opportunities for Canadian producers.
“We’ve had declining prices in recent years, and in such an environment, buyers usually buy hand to mouth, meaning they don’t have a super long lead time because they want the lowest price possible,” said Boersch.
“But it takes us a long time to get grain from source to port. In a down market, that could put some people ahead of us.”
Canada’s agriculture industry is planning on more production and increased exports — but the same level of planning isn’t going into how to get that increased production to port, she said.
“As other people’s capacities increase and we don’t keep pace, the inevitable effect will be that we lose market share.”
Better next year?
Despite its challenges, Hemmes still believes that Canada has one of the best grain transportation systems in the world, particularly on the West Coast.
“As a country, we’re right up there — if not way ahead of where they are in the Black Sea as far as investment is concerned,” he said.
“The issue is, what happens between the country and the port?”
Right now, the railways are doing “all the right things” to combat these slow service times, including adding 400 more train crews and more locomotives, he added
“It’s too late for any of it to make a difference on the new crop year, but next year and going forward, they’ll have some good things in position,” said Hemmes.
And frankly, it’s long overdue, said Pratte.
“Grain is a fundamentally different supply chain,” he said.
“There’s no other commodity out there where the producer has no legal standing with respect to shipping it. Farmers don’t book the boat and they don’t book the train, but they pay for it.
“When there are those hiccups, it does come back to the farm gate.”