(The Great Falls Tribune posted the following article on its website on November 3.)
WASHINGTON — The Bush administration should forget about trying to promote free trade to help America’s farmers until the government fixes a freight rail system fraught with high shipping rates and bottlenecks that reduce the competitiveness of U.S. agricultural products, a frustrated farm group official testified Thursday.
The three-member federal Surface Transportation Board, which has oversight of the nation’s freight rail network, held a daylong hearing to discuss a recent study that found the cost of shipping grain has risen while rates for shipping other commodities have dropped.
“Railroads are as important to us as our tractors,” said Evan Hayes, an Idaho farmer and president of the National Barley Growers Association, who suggested new trade agreements are a waste of time if farmers can’t ship their grain at competitive prices.
“We grow some of the best wheat in the world, but are being put at a competitive disadvantage,” agreed Dale Schuler of Carter, Mont., president of the National Association of Wheat Growers. He estimated that farmers in 17 states are victims of “captive shipping,” meaning that there is only one railroad available for them to ship their products.
Freight rail shipping rates for grain have increased 27 percent since 2003, while overall revenue for all types of commodities shipped by rail have risen only 1 percent, a top Department of Agriculture official said.
“Several states — including Arizona, Kansas, Montana, North Dakota, Ohio, Oklahoma, Texas and Utah — rely heavily on rail services for the transportation of grains,” said Bruce Knight, undersecretary for marketing and regulatory programs. “More than 50 percent of corn, wheat and soybeans produced in these states are moved by rail.”
The BNSF Railway handles 53 percent of all rail shipments of wheat and has very limited rail competition in the Northern Plains states, according to the USDA. The only rail service for Montana’s Hi-Line is.
“I think this board has not taken the steps necessary to maintain competitive balance,” said attorney Terry Whiteside of Billings, who represents wheat and barley grower associations in Montana and eight other states.
Executives of four major railroads, who also testified Thursday, said that their charges have reflected the cost of expanded shipping capacity, including the purchase of new railcars.
“Today traffic has to pay for the capacity it consumes,” said Douglas Martin of Union Pacific, explaining that the nation’s rail network no longer has the excess capacity it once had.
Freight rail is dominated by seven companies — two of them Canadian owned — which are described in the industry as Class 1 railroads. Although the number of smaller short-line railroads has grown by the hundreds over the past 20 years of deregulation to 525, major railroads generally require new short lines to agree to exclusivity agreements that limit competition. Under such an agreement, the Class 1 railroad that formerly owned the new short line’s rails receives exclusive long-distance shipping rights to all the business the short line generates.
The Surface Transportation Board is considering a possible regulation that would limit the ability of major railroads to demand these exclusivity deals, according to board member Francis Mulvey.
The board also has proposed a regulation that would simplify the process for small shippers to challenge the rates charged by the railroads.
“Shippers in small dispute cases, which include grain shippers, say they don’t use the current process because they don’t feel they have a chance to win, it’s too expensive and takes too long,” said board Chairman Charles Nottingham.
BNSF Railway’s Kevin Kaufman of the ag marketing division said the railroad supports streamlining the process.
“The Union Pacific Railroad Co. and the two Canadian railroads represented at the hearing would not make the same commitment,” Nottingham said.
According to a recent report by the U.S. General Accountability Office, the Staggers Act that deregulated the rail industry in the 1980s has been successful in promoting competition, said JayEtta Hecker of the GAO. But there are some areas in which remnants of undue market power still exists
Congress authorized a $1.8 million study of competition, but the money has not been allocated.