A new study suggests that railways are charging Canadian farmers $200 million a year more than they should to haul grain.
The Agricultural Producers Association of Saskatchewan and five other major western farmers’ groups released a report on June 16 about the cost of rail freight in the last two years. The other groups were the Canadian Federation of Agriculture, the Canadian Wheat Board, Keystone Agricultural Producers, the National Farmers Union and Wild Rose Agricultural Producers.
The report, written by John Edsforth of Travacon Research, suggests Canada’s two rail carriers, Canadian National (CN) and Canadian Pacific (CP), charged farmers about $199 million a year more than would have been considered “fair” under the old Western Grain Transportation Act, which was phased out in the mid-1990s.
That adds up to tens of thousands of dollars for a typical Alberta farmer, said Allen Oberg, chair of the Canadian Wheat Board — about $25,000 in the case of his farm near Camrose.
About 83 per cent of farmers say these rates are unreasonable, Oberg said, citing a recent board survey, and want them lowered. He called on the federal government to start a formal rail cost review as soon as possible.
“Every year we wait is another year gone by with farmers paying millions more than their fair share,” he said.
The old Western Grain Transportation Act said a fair rail fee should not exceed 20 per cent of a railroad’s operational costs, said Humphrey Banack, president of Wild Rose. Today’s fees are capped based on a formula that accounts for fuel, labour and capital.
But the numbers and formulae behind that cap are out of date, he said.
“We haven’t had a review of those base calculations in the last 18 years,” he added.
Rail companies slashed costs during that time by closing elevators and lines, causing farmers to haul grain longer distances.
“The efficiency gains by the railroad (have) come at the expense of western Canadian farmers,” he said.
CN and CP charged between $222 million and $384 million in 2008 and 2009 for grain, Edsforth found, or about 45 to 70 per cent of their operational costs. That’s about $123 million to $275 million more than what was considered fair under the old act.
Banack estimated he paid about $24,000 more a year than he should on shipping — his second biggest cost.
“Some families are living on that,” he said.
Since CP and CN are the only railways that will ship grain, farmers have little choice but to pay their prices.
“We’re losing farm income here to overpay the railroad,” he added.
Kelli Svendsen, spokesperson for CN, said her company’s rates for grain farmers were among the most competitive in the world, but would not disclose details for commercial reasons.
“When you look at lowering rates even further, that jeopardizes investment in the grain transportation system,” she said.
Western farmers rely heavily on trains, Oberg said, and have to move their crop about twice as far to port than any other nation. He called for regular four-year reviews of rail costs. That would give rail companies a few years to enjoy efficiency savings before passing the benefits onto customers.
All farmers want is a review of the numbers, Banack said.
“If those numbers favour the railroad, I guess that’s where we’re at,” he added.
Members of Parliament have said that they would think about a cost review after they finish their current level-of-service review of railroads, Banack said, but that could take years.
“Every day we (delay), there’s a huge amount of cash removed from farmers’ plots,” he said.
The report is available at www.cwb.ca