(The following story by Paul Waldie appeared on the Globe and Mail website on April 30.)
TORONTO — Ian McCreary is already paying sky-high prices for fertilizer and fuel to run his grain farm near Bladworth, Sask. Now he’s facing an 8-per-cent increase in freight rates charged by railways.
The record increase, approved recently by a federal regulator, goes into effect on Aug. 1, just in time for harvest. Mr. McCreary calculated it will add nearly $5,000 to his annual $60,000 freight bill.
Even with grain prices high, the additional transportation cost will cut into the already thin operating margins for many farmers. “You are putting a lot more dollars in the ground and if the weather goes against you, you are in trouble,” Mr. McCreary said.
Higher freight rates will also add to growing concerns about food inflation in Canada. Some economists have already predicted food prices will jump by 3.5 per cent this year, outstripping the overall inflation rate.
Canada’s railway companies insisted the rate increase simply reflects their soaring fuel bills.
“The rail industry is facing record high fuel prices, and diesel fuel is a major factor in transporting grain over long distances in Canada,” said Mark Hallman, a spokesman for Canadian National Railway Co.
Breanne Feigel, a spokeswoman for Canadian Pacific Railway, said “the agency’s decision does reflect the inflationary demands and challenges that the railways have been facing.”
Grain freight rates are regulated by the Canadian Transportation Agency, which sets an annual cap on the rates CN and CP can charge in the coming crop year. The calculation is based on the railways’ costs for fuel, labour, rail car leasing and other inputs.
Last Friday the CTA said the cap will increase by 8 per cent for the 2008-09 crop year, a record increase that has infuriated many farmers. “It’s unbelievable that they’ve been given a licence to increase the burden on farmers again, well beyond the level of inflation,” said Ian Wishart president of the Winnipeg-based Keystone Agriculture Producers association.
He and others contend the CTA’s calculation is based on 16-year-old assumptions about how railways operate. They say the calculation doesn’t take into account productivity improvements and a reduction in the number of grain elevators, which means trains make fewer stops. The number of elevators has shrunk to 370 from 1,500 in 1992. A study commissioned by the Wheat Board concluded that as a result of the flawed formula, the railways have overcharged farmers by $100-million annually.
The railways don’t accept the calculation and say Canadian farmers enjoy some of the lowest freight rates in the world. They also note that the CTA lowered rates last year.
“I can understand why farmers would like to pay lower freight rates,” CN’s chief executive officer Hunter Harrison said in March. “Everyone would like to pay less for what they buy. But the fact is that prices are normally set in the marketplace – it’s true for gasoline at the pumps, food at the grocery store, and, yes, it’s also true for grain, which is currently commanding record high prices because of supply and demand dynamics.”