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Last Updated: May 8th, 2008 - 20:33:00
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Canada’s two major railway companies are extracting about $100 million a year too much from Canadian farmers’ pockets, a major study by a railway analyst commissioned by the Canadian Wheat Board indicates.
The study, released at a Manitoba country elevator Tuesday, is the backbone of a multi farm organization lobby to the federal government to launch a complete railway costing review they say will confirm the direct producer losses in moving their grain to export position.
Lynn Jacobson of Enchant, first vice-president of the Wild Rose Agricultural Producers, said following the teleconference the last time farmers had a chance for a fair deal on grain transportation was 1992 when the grain freight rate system was introduced.
Jacobson said the rail companies were earning 20 per cent return on investment at the 1992 freight rate. Today, that return is more like 50 per cent and all of that extra money is coming directly from farmers’ pockets.
The demand for the costing review comes on the heels of a rail car maintenance agreement that was being abused by the rail companies, it was later determined. The rail freight cap was reduced by $72 million a year on that finding, money farmers no longer have to pay to ship their grain.
Jacobson said news of the costing review report spread quickly. “We have already received a request for the report from Alberta Agriculture and Food.”
Jim Feeney, a CN rail spokesman, said they disagree with the study’s overall conclusions, noting the railway did not provide its own numbers for the report.
Even with the extreme weather in many parts of the country over the past winter, CN has already moved seven per cent more grain this crop year compared to the same period last year, he said.
The demands for a rate review, said Feeney, appear to be an attempt to re-regulate the grain transportation industry.
“In effects, these groups want to turn back the clock. The trouble that we see — the Canadian industry has been moving in the opposite direction for 25 years,” Feeney said in a telephone interview from Montreal.
Bob Friesen, president of the Canadian Federation of Agriculture, said the costs of moving grain are simply too far out of line and all the excess costs are borne by producers.
“We’re not against the railways making a profit,” said Friesen. “Everyone — farmers and rail businesses — needs to make profits to be sustainable. But one’s profit should not come at the other’s very large expense.
“At a time when the soaring cost of production is still interfering with the ability of farmers to profit from high commodity prices, $100 million in revenue lost on a runaway train is a big problem.”
Besides the CFA and WRAP, participating farm groups include the National Farmers Union, Keystone Agricultural Producers in Manitoba, Agricultural Producers Association of Saskatchewan and the Canadian Wheat Board.
The study, done by John Edsforth, estimates the railways in 2006-07 made $175 million or $6.25 a tonne more than what was considered fair and reasonable compensation for moving grain under the previous Western Grain Transportation Act, also know as the “Crow Rate” that was repealed in 1996.
Jacobson said he produces about 2,000 tonnes of grain a year on his farm and capturing the $6.25 a tonne would add about $12,000 a year to his bottom line.
McCreary called the study results “shocking.”
“It shows the railways earn far above what they would in a competitive rail market,” said McCreary. “As shippers, we need timely rail service but we also require that the cost for that service is reasonable since we face greater distances to port than all the other grain exporters in the world.”
Farmers in Canada must move their grain more than twice the distance to ports of any other grain exporting nation in the world. Saskatchewan is 1,450 kilometres from the nearest port.
Jacobson said historically grain moved under a subsidized freight rate was subject to a maximum rate structure under the Western Grain Transportation Act. In 1996, this was repealed and replaced by a regime of freight-rate caps.
He said the railway revenue cap for grain movement increases farmers’ rates with inflation, but does not pass any cost savings back to farmers. Farmers have been placed into a fully commercial relationship with the railways without adequate regulation or effective competition to discipline rates and services.
Bill C-8, which passed into law Feb. 28, is a step forward because it introduces multi-party final-offer arbitration to help shippers work together on railway issues, said Jacobson. It also removes the need for shippers to prove substantial commercial harm to receive access to remedies from the Canadian Transportation Agency.
“But it does not address the need for increased railway competition that could help restore balance through measures such as reverse-onus running rights,” he said.
Bill C-8 provides for a railway service review to be conducted in the near future.
“Western Canadian farmers are requesting that a full costing review for grain transportation also be undertaken in conjunction with that investigation,” Jacobson said.
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