The federal government is taking another step to ease a multibillion-dollar backlog of grain on the Prairies, a move that Canadian National Railway Co. says is a disturbing and heavy-handed intrusion that could leave the industry vulnerable to American competitors.
The Fair Rail for Grain Farmers Act, announced Wednesday, includes a series of regulatory changes – including one that will chip away at Canada’s rail duopoly by essentially expanding the ability of grain shippers to pick a railway.
The provision angered CN, which called it a “sad day for Canada.” The legislation will also allow the federal government to collect more information from the rail companies while enshrining measures, similar to those that were announced earlier this month, that will allow the government to set minimum shipping levels.
The chief executive officer of CN slammed the decision as short-sighted and ineffective.
“CN is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control,” Claude Mongeau, CN president and CEO, said in a written statement.
“The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future,” Mr. Mongeau said, adding that it “could hit Canada’s railways by opening their business to unfair poaching by U.S. railways without any reciprocity. Beyond causing financial harm to CN, it could drain traffic away from Canadian ports and cause the loss of jobs, reduce investment and undermine tax revenues across Canada.”
One major proposed change relates to “interswitching” – under current rules, shippers can only sign with a railway operating within 30 kilometres of a grain elevator. It means most have only one option. For those that don’t, the nearest rail company is obliged to transport the grain up to 30 kilometres, at a set rate, to bring it to a railway the shipper signed with.
That distance will be increased to 160 kilometres under the new bill. It means grain shippers, on behalf of farmers, can look farther afield for rail companies able to ship their product – roughly 150 primary elevators across the Prairies will have the chance to be served by more than one railway, up from 14 elevators that currently have that option.
“This reflects the new reality of how far apart elevators are, and the changes in the rail system,” Agriculture Minister Gerry Ritz said. “This interswitching is the best way to give us a quasi-competitive situation.” The government stopped short of allowing rail companies to use each other’s railways. “We do not want to get entangled in joint running rights. It creates more problems than it’s worth,” Mr. Ritz added.
CN and Canadian Pacific Railway Ltd. have been under fire by farmers and government for their lagging performance in shipping the grain. The backlog stems from a combination of an unusually ample harvest in Western Canada – 76 million tonnes, 50 per cent higher than average – and competing demands for capacity on Canada’s railways, with cold weather adding to the pinch.
CP said it is still reviewing the bill. The Manitoba and Alberta governments said they supported the measures, while Saskatchewan said it was underwhelmed.
The country’s grain elevators are at 93-per-cent capacity, with some storing grain on the ground – raising fears it will spoil in spring weather. Earlier this month, Ottawa set minimum amounts of grain that rail companies must ship – or face fines – in a bid to get the crop moving. A senior official said the legislation will confirm the government’s authority to set volumes in the coming years.
Transport Minister Lisa Raitt said the government is confident that CN and CP will meet their target of moving a combined one million tonnes of wheat, canola and other grains each week beginning April 7.
Half of Canada’s total grain is exported, and a full 94 per cent of that is moved by rail. Shipping grain is one of the dominant sources of revenue for both railways, accounting for about a fifth of the freight weight they ship. Fuel oil, by comparison, is about 6 per cent, a senior official said.
Ms. Raitt said she doesn’t expect the Fair Rail for Grain Farmers Act will have any negative impact on the shipping of other commodities. The bill still needs to be approved by the House of Commons, although the official Opposition said it would co-operate in passing it quickly.
Gary Stanford, an Alberta farmer and president of the Grain Growers of Canada, said he hopes the act will hold railways more accountable.
“I think it’s good for keeping railways honest,” he said. “We’re saying, ‘Just because it snows and it’s cold in the wintertime, can’t you have a couple more locomotives out there?’ ”
He said he realizes it’s a “farmer’s choice to be a farmer” – that it’s an unpredictable life with ups and downs – but he’s frustrated that he has 200 tonnes of wheat sitting in bins, including some that was contracted for shipment last December. That backlog, he said, is worth roughly $52,200.
Mr. Stanford added that he’s worried about Canada’s stature on the global stage: He was at a grain conference in Singapore earlier this month, where attendees questioned whether his country is a reliable grain exporter – a concern Ms. Raitt flagged in her remarks Wednesday.
“It’s going to help us maintain our strong reputation as a reliable commodity supplier,” she said, noting that Canada is the world’s fifth-largest grain exporter.