You’ve got to hand it to Western Canadian grain farmers – it’s never easy for them. Name another sector that needs to worry about flood, drought, heat, frost, rain, grasshoppers, rising input prices, mice, hail and crop disease. It’s always something.
In 2014, you can add to the list of frustrations an inability to get rail cars. For reasons that vary depending on whom you ask, Canadian National Railway and Canadian Pacific Railway have been slow in delivering grain hopper cars to elevators this winter. Due to the bumper crops that were harvested last fall, elevators across the Prairies are plugged to the gills with grain – they can’t take in any more. And if farmers can’t deliver their grain, they don’t get paid. And then they get mad.
Predictably, there are a lot of fingers being pointed and a lot of versions of the story. According to the farmers, the railways are the villains in the story. They’re too busy zipping tank cars of bitumen around the country to bother with the less sexy wheat and canola.
The railways deny that, saying oil traffic makes up a very small percentage of their sales. According to them, they’re hauling almost as much grain as they usually do at this time of year – maybe a bit less due to cold temperatures and avalanches. The problem, CP and CN say, is the unusually large volume of grain produced in 2013. They just don’t have the capacity to haul it all to the ports as quickly as farmers would like. They also blame a lack of co-ordination across the entire supply chain, pointing the finger back at the producers, port terminals and elevators.
But aren’t the railways doing exactly what they, as profit-maximizing companies, should be doing: maximizing profits. The old system of price caps to haul grain was eliminated years ago, but under the current Canada Transportation Act, the railways still face a “maximum revenue entitlement” from grain. They face no such restrictions in shipping bitumen or other commodities.
The spat between the farmers and the railways reached Parliament on March 7, and there was a clear winner. Federal Transport Minister Lisa Raitt ordered CN and CP to increase the number of grain hopper cars to elevators. The story here has little to do with economics and everything to do with politics, since farmers vote and railways do not.
Farming in Canada has always been an exceptional sector, enjoying a level of political clout that no other industry can boast. If anyone questions why, for example, we need supply management in dairy or special revenue caps for grain, they’re glared at and asked “Don’t you know where the food on your plate comes from? Do you want to go hungry?” Farming has always been framed by the notion that we’re all only one meal away from starvation.
Canadian agriculture manages to command a degree of sacredness that even the Pope would envy. If agriculture – from dairy protectionism in Quebec to maximum revenue entitlements on western grain – was truly opened to market forces, there would be outrage. Combines would roll onto Parliament Hill; ice cream would be hurled at an effigy of the Prime Minister. It would be chaos.
A century ago, it may have made good sense to protect agriculture through various measures such as the Canadian Wheat Board, price caps on freight rates, and supply management in dairy and poultry. But today, agriculture is one of the fastest-growing and most technologically advanced sectors of the economy – especially on the Prairies this year. Canada is a global leader in agricultural exports. Is it still so sacrilegious to suggest that perhaps they no longer require the economic protection they once did?
Rather than maximum revenue caps and orders for railways to haul more grain, Canadian farmers would be better served by another action taken this week by Ottawa: the free-trade agreement with South Korea. By removing trade barriers, Canadian agricultural products will find new global markets.
If the railways were allowed to maximize the revenue they receive from hauling grain, it might be surprising how quickly they’d find a few spare grain cars sitting around – and how immediately those grain elevators would be emptied.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.Report Typo/Error
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