March 26, 2008

 

Canadian study finds railway duopoly hurting grain producers

 

 

Canada's two main railway companies have been enjoying record profits and have achieved that success with their monopoly over Western Canadian producers, according to an independent study commissioned by the Canadian Wheat Board and other Canadian farm organizations.

 

The groups want the railways to stop this practice and have called on the Canadian government to conduct a full rail costing review. The last full review was done in 1992.

 

A full rail costing review was called for as the numbers used to calculate revenue caps for grain freight are significantly out of date and fail to account for major reductions in grain elevators, rail track mileage, rail service, and car supply over the past 17 years, the groups said at a news conference held Tuesday at a grain elevator located just outside of Winnipeg.

 

The groups include the Canadian Federation of Agriculture (CFA), the National Farmers Union (NFU), Keystone Agricultural Producers (KAP), the Agricultural Producers Association of Saskatchewan (APAS), Wild Rose Agricultural Producers (WRAP) and the Canadian Wheat Board (CWB).

 

"We're not against the railways making a profit...as everyone, farmers and rail businesses, need to make profits to be sustainable," Bob Friesen, president of the Canadian Federation of Agriculture, said. Friesen added that at a time when the soaring cost of production is still interfering with the ability of farmers to profit from high commodity prices, train revenue is a big problem.

 

The study, conducted by private rail analyst John Edsforth, found that Canadian National Railway (CNR.T) and Canadian Pacific Railway (CP) have made over CAN$100 million a year in unreasonably excessive returns at the expense of Canadian farmers.

 

The study estimates that the railways in 2006/07 (August/July) made CUS$175 million (or CUS$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compensation for moving grain under the previous Western Grain Transportation Act, also know as the "Crow Rate" (repealed in 1996).

 

This year, the Canadian Transportation Agency (CTA) found the railways had been allowed to earn revenue that was triple their actual costs for rail car maintenance and reduced the revenue cap for grain by about CUS$72 million a year. A gap of at least US$100 million remains, while the railways appeal aspects of the CTA ruling, the study showed.

 

"These results clearly show that something is not right with the revenue cap and the freight rates farmers are paying," said Ian Wishart, KAP president. "Mechanisms like the revenue cap were meant to protect farmers. We need the government to step in, run the numbers and see if those mechanisms are serving farmers or if they need fixing."

 

CWB elected director Ian McCreary called the study results "shocking."

 

He said the study shows the railways earn far above what they would in a competitive rail market.

 

"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, McCreary said.

 

Glen Blakley, Agricultural Produces Association of Sasketchewan (APAS) president said railway profits have gone up while the level of service to farmers has gone down, adding that it is time to bring railway costs back to reality and rebalance the equation for farmers.