(The following story by Margaret Cappa appeared on the Globe and Mail website on January 1, 2010.)
TORONTO — Prairie farmers are hoping Ottawa takes an interest this year in rebalancing the relationship between train and grain.
The pinch farmers feel stems from the streamlining of Canadian rail operations: many have paid to keep pace with efficiencies that raise railway profits, they say. Railways have improved service and saved money through the closing of more than 1,000 grain elevators since 1992.
As fewer stops along the line made railways more productive, farmers have had to pay more money to truck grain further and build storage units on the farm to make up for lost elevator space.
On Thursday, the federal government found the Canadian National Railway over-profited from hauling grain in the 2008/09 crop year. The company was ordered to pay back excess revenue of $683,269 plus a 5-per-cent penalty, within 30 days, to a grain research foundation.
Farm groups and the farmers they represent say the current method used to assess revenue caps isn’t working. For one thing, they argue, it doesn’t account for efficiencies over time that have indirectly raised railways’ profits – even within their revenue caps. Farmers must keep paying to adapt to the growing efficiencies.
“To expand our facilities every year out of our bank accounts is getting costly,” said Rob Lewandoski, a 50-year grain farmer from Sandy Lake, Man. “But if farmers don’t do it, they won’t be farming much longer.”
For Mr. Lewandoski, whose family has been farming for more than a century, keeping up has been costly. He purchased an entire grain elevator, slated to be demolished, for extra storage and added five transport trucks to his operation. While he still pays to truck his grain to further and fewer elevators, Mr. Lewandoski has often opted to go around the rail system and deliver his product directly to customers, he said.
A coalition of farm groups is calling for the federal government to review the cost of doing business for both railways and farmers. The farm groups, including the Canadian Federation of Agriculture and the Canadian Wheat Board, say money should trickle down to farmers though lower freight rates – which they say have jumped 40 per cent since 1992. The goal of an intensive review of the rail system is to focus on the gains railways have won through streamlining their service.
“We’re not blaming the railroads for making as much profit as they can,” said Ryan Doucet, policy adviser with the Canadian Wheat Board. “What we’re saying is a costing review needs to be done.”
The last full costing review of the rail system was done in 1992, said Mr. Doucet. Under the Western Grain Transportation Act (which was abolished in 1995), regular costing reviews ensured productivity gains for railways were shared with farmers, said Mr. Doucet.
Now, instead of these reviews, annual revenue caps are placed on Canadian rail company profits.
“It’s a form of regulation, a revenue ceiling, where the railways are free to set their own rates as long as they come in under the revenue cap,” said Marc Comeau of Transport Canada. The cap, set annually by the Canadian Transportation Agency, fluctuates from year to year to reflect changes in volume of grain shipped, lengths of haul, fuel-cost fluctuations and inflation. Railways pay a penalty for exceeding the caps.
While the caps are re-examined each year, the model is flawed, according to rail and transportation economist John Edsforth, who wrote a recent Canadian Wheat Board report on the subject.
“It doesn’t have a formula to incorporate productivity gains with the railways’ true costs,” he said. The fact that farmers must pay to keep up with railways’ productivity gains is unfair, he believes.
The productivity growth of rail freight operators Canadian Pacific Ltd. and Canadian National Railway Co. was higher than any other transportation sector in Canada between 1981 and 2006, according to a 2009 report from the Conference Board of Canada. That growth was 18 times higher than the overall average productivity gain in Canadian business.
“In truth, [railways] are more efficient, but the primary beneficiaries have been the railways, not the farmers,” said Mr. Edsforth. “It’s economics 101 that you pass productivity gains on.”
A review of productivity gains was included as part of the federal government’s introduction of the revenue-cap legislation in 2000, said Melanie Quesnel of Transport Canada. The railways’ revenues were rolled back through reducing the revenue-cap base by 18 per cent, she said, resulting in a net productivity transfer to farmers.
However, the farm groups say they haven’t felt this relief and insist on a full review of grain transportation.
Their argument has so far fallen on deaf ears. The groups have been lobbying on the issue for four years, said Rob McLean of Manitoba’s Keystone Agricultural Producers. Their hope is 2010 will finally bring change to the system – and much-needed relief for their pocket books.