Prairie Farmers Still Need A Rail Costing Review

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Director, Canadian Wheat Board

On April 7, it will be a full year since the federal government announced the start of its long-promised review of rail-freight service.

This review is very important for Prairie farmers and grain shippers. Almost every one of our competitors around the world has access to rail, truck or water alternatives when moving grain to tidewater. We do not have those options. We must rely on rail service.

Yet there is reason to believe that any results from the complex rail service review will take a very long time. In the meantime, we have repeatedly called for a much more straightforward costing review on grain transportation. We need to ensure that our annual rates are being set based on reasonable cost data. However, we’ve been told that a costing review can’t begin before the service review is over.

You can be excused if you’d rather not hold your breath.

Let’s look back at the progress so far. It was to take 12 to 18 months to complete. There were four stages: gather and analyze data, develop recommendations, consult stakeholders, submit a final report.

A year later, the review still appears to be in stage one. The government has made no announcements since a consultant was appointed last August. There are some very good reasons for this slower pace. This is a gargantuan undertaking. The review will examine the entire rail-freight industry, not just grain.

Add to that all the other sectors that rely on rail freight, such as lumber, potash, containers, coal and automobiles. The many shippers are small, medium and large. The review must consider many service issues, each a quagmire of complexity: car supply, demand forecasting, peak movements, operating practices, shortline railroads, surge capacity, transportation alternatives, communications, financial impacts, data acquisition and accountability for poor performance.

You begin to see the problem. Wait, there’s more. Once the final report is submitted, the rest of the fun begins. Does government adopt the recommendations? Will there be political squabbling? After that, how long will implementation take? Will I still be farming when that happens?

To have any hope of meaningful results, the review needs to be thoroughly conducted, which realistically means taking longer to complete. However, we can’t wait for this process to be complete before a rail costing review is done. There is no reason to wait. The two reviews are completely distinct. While the service review is broad and all-encompassing, a costing review focus narrowly on an area of existing regulation. It would take nowhere near as long.

The costing review would examine current railway costs for shipping grain and make sure those costs are accurately reflected in our rates. Each year, the rail revenue cap for grain transportation is set. The rates we pay are directly related to that cap, which is based on a formula that includes railway costs.

Those costs have not been reviewed since 1992, which means our rail rates are being set using costs that the railways incurred for moving grain 17 years ago. We can safely assume those old costs are irrelevant now.

For one thing, there were many more grain elevators across the Prairies – 1,500 elevators, compared to 370 today. The railways have far fewer delivery points to serve. For another thing, grain today is sourced mainly in large blocks of at least 50 rail cars (more often 100), introducing further efficiencies for the railway companies.

These cost-saving measures have not been reflected in our rate structure. For us, it has only meant hauling grain further to elevators and putting up with fewer choices in grain handlers. A study commissioned by the CWB suggests that the railways are making millions in excess revenue because of this outdated costing formula. In March 2008, we joined with the Canadian Federation of Agriculture, the National Farmers’ Union, Keystone Agricultural Producers, the Agricultural Producers Association of Saskatchewan and Wild Rose Agricultural Producers in a public call for a costing review. Individual producers can add their voices by talking to their local MPs or sending an e-mail through the CFA website A rail costing review would ensure our rates are based on accurate and up-to-date rail cost figures. It doesn’t seem much to ask, yet all we have faced is resistance.

Without adequate, affordable rail service, Canadian farmers are at a competitive disadvantage in selling their grain to the world. That not only harms farmers’ livelihoods, it’s bad for all Canadians.

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