Two federal cabinet ministers showed up in Winnipeg unexpectedly last week to announce Ottawa was getting tough with the country’s two largest railways companies, forcing them to carry more farmers’ grain or face stiff penalties in the range of $100,000 a day.
The federal order expires in 90 days, though it could be renewed if Western Canada once again experiences the perfect storm of a record crop combined with the coldest winter in several decades.
And despite the aggressive posture of the two ministers, the railways had already told Ottawa they could achieve the minimum requirement now that the weather has moderated and if, and only if, they get co-operation from everyone in the transportation chain, including the terminals on the West Coast and at Thunder Bay, Ont., where grain shipments are still being held up by the weather. Marketing companies will also need to do their part to get farmers’ products to their final destination.
Presumably, the federal government will use its influence to ensure the railways get the help they need to deal with the unprecedented bottleneck.
Last year’s Prairie harvest was the biggest in Canadian history, requiring CN Rail alone to move 10 million more tonnes of export grain.
No company prepares for that kind of surge in demand, but the railways were doubly hamstrung by the Arctic weather, which forced them to run shorter trains than normal for safety reasons.
CN says it will ramp up to the government-mandated minimum of 5,500 cars delivered to country elevators each week within the four-week time frame set by the government.
Federal Agriculture Minister Gerry Ritz says more regulation could be on its way to ensure the railways meet farmers’ needs.
More rules, however, would further distort the market, particularly if they require carriers to favour one customer over another.
Will potash exporters be told to wait, or can other farm products stand still while the grain is moved out of farmers’ bins and shipped to market?
Farmers already benefit from a revenue cap that restricts the amount railways can charge for moving certain volumes of grain. It’s a form of economic regulation that enables CN and CP to set their own rates for services, provided the total amount of revenue collected remains below the ceiling set by the Canadian Transportation Agency. In other words, the carriers can charge what they want, providing it’s not too much.
It’s an anachronistic system, a hangover from the days when grain was the king of the economy in Western Canada and farmers demanded protection from the power of the railway.
The voting power of farmers led to the establishment of the so-called Crow Rate in 1898, which suppressed freight rates in return for federal subsidies to CP Rail.
It wasn’t eliminated until the 1990s, after the government agreed it distorted the regional economy by providing preferential treatment to grain farmers over shippers of other products.
Railways should operate in a market ruled by the laws of supply and demand, rather than on old-fashioned values and romantic notions of dusty old farmers out working their fields.
Grain transportation should be based on the same commercially based relationships as any other commodity that is moved by rail, air, road or sea.
Last year’s record crop is good news for railways, too, but when the system reaches peak demand, there will be delays. This year’s polar vortex only added to the problem, but the combination of circumstances does not happen that often.
There is never an easy solution to unusual or rare circumstances, but the federal government, railways, producers and other stakeholders should hold a summit to determine how to manage similar crises in the future.
» A version of this editorial also ran in the Winnipeg Free Press.
Republished from the Brandon Sun print edition March 11, 2014