Blair Rutter, executive director of the Western Canadian Wheat Growers Association, caught up with Milling & Grains last week on the impact of the backlog to growers, the risk of continued artificial depression of grain prices, and the importance of healthy competition for the railways.
M&G: Talk about how this winter’s grain backlog impacted wheat growers in your association.
Blair Rutter: It has severely depressed prices to farmers, simply because the grain companies have not had the ability to ship out all the grain. With all this congestion in the system, grain companies have lowered bids to farmers to discourage them from delivering grain, which has resulted in—conservatively—a hit of $2bn right to bottom line of the farmers. It’s the farmers bearing the brunt of this. The railways are not suffering any consequences; they’ve been downsizing, so they’re improving their profit margins. Grain companies have been able to widen their basis and discount prices such that yes, they’re incurring some contract extension and merge costs but that’s far outweighed by the discount to prices in farmers. The only party really hurting is the farmer. We have little recourse. We can’t pass those costs on to anyone, so we’re looking to the federal government for help.
M&G: There were a lot of theories as to the cause of the problem, which was obviously magnified by such a record wheat crop—staffing, not enough locomotives, etc. What do you think caused the backlog?
Rutter: It’s not an issue of rail cars. There are enough cars. It’s an issue of not enough locomotives and crews dedicated to shipping grain. [Canadian Pacific Railway (CP)] has reduced its workforce, and it’s also sold or leased off some locomotives so it’s actually contracted capacity in the face of crop that was 37% larger than normal. They can get away with that because they have little competition. As a result, they’re able to reduce service and not suffer any consequences.
M&G: Are you happy with the proposed legislation overall? Anything you’d like to see better addressed?
Rutter: Interswitching [a provision enabling shippers to apply to have grain shipped to the interchange with the US Burlington Northern Santa Fe rail line] will allow BNSF to capture some business in Canada. Moving from 30 to 160 km brings about 50 elevators into play that BNSF can now access. That will add some capacity at a modest measure of competition. But there’s not enough in this bill to deal with the backlog. We’re faced with backlog that’s going to take months to clear up. Even if the railways indicated they are going to comply with the minimum order of a million tons a week, we’re still looking at a carryout of over 25 mn tons heading into next harvest. This problem going to be with us well into 2015 unless grain shipments are ramped up considerably. That’s where the legislation falls short. Grain prices will remain artificially depressed as long as this goes on, and that’s not something we can sit by and let happen.
We also need measures that encourage more capacity to be added—whether that’s through expanded running rights or allowing the BNSF opportunity to haul more grain. We have a dozen short lines with excess capacity in Canada. If [Canadian National Railway (CN)] or CP is unwilling to add capacity those short lines should be invited to fill the gap and meet need. That’s not our first choice. In a sense CN and CP own the tracks so they get first dibs. But if they want to haul oil and can’t give farmers the service they need, then step aside and let someone else provide service if not willing or able to do so.
Regarding [CN president and CEO Claude] Mongeau’s comments about interswitching as ‘poaching’ by US railways: What he considers poaching, I consider competition. There’s a sense of entitlement that if it’s Canadian grain they’re entitled to it. If they did their job, we’d be first to agree by all means, you get first dibs. But when you fail to do your job, step aside and let someone else meet our needs.
The Canada Transportation Act will be reviewed starting later this year. As part of that, we expect there will be an opportunity to incorporate more pro-competitive provisions in the act, which will go beyond what we see in this legislation. That’s what we will strive for: more competition and improved service and capacity so farmers are better served than they are today.