Producer Cars at Risk in CWB Change

April 9, 2007
 
RGV Loaders is a small producer car loading facility with a big success story. Located in the village of Golden Prairie, it sits at the end of the 17.8-mile Hatton subdivision. This branch line runs off CP's main line north of Maple Creek. The key to RGV's remarkable success lies in its geography. RGV stands for Richmound, Golden Prairie and Fox Valley. The villages of Richmound and Fox Valley were located on a CP branch line (now abandoned) 35 miles north of Golden Prairie, but due to the circuitous route that line took to get grain to port, their freight rate was much higher than the rate at Golden Prairie.
 
When elevators closed in the small towns in the area, farmers turned to producer cars to add some value to the mainly durum wheat grown in the area. RGV Loaders emerged with Golden Prairie as the logical site to load grain and gain lower freight rates.
 
Farmers in the area have adopted producer cars with a vengeance, despite the existence of concrete elevators at Maple Creek and at Dunmore across the border in Alberta. Last year, farmers loaded 465 producer cars in Golden Prairie. This crop year they are on target to ship over 700 cars. The additional benefit to farmers from this will exceed three-quarters of a million dollars.
 
The Hatton subdivision may well be unique because of the density of traffic generated, nearly 40 cars per mile, but it is not the only successful producer car dominated branch line. The Alliance subdivision in central Alberta also generates a good amount of producer car traffic. Both lines share one other thing in common - their respective mainline owners intend to abandon them.
 
The impending abandonment of CP's Hatton subdivision and CN's Alliance subdivision might present some difficulty, but not an insurmountable barrier. Both lines would make reasonably good candidates for short line operation, and area farmers are certainly interested in exploring these options. However, there is a larger fly in this ointment, and his name is Chuck Strahl. The Agriculture Minister's intention to eliminate the single desk for wheat and barley sales in western Canada threatens to undermine efforts to establish these short lines.
 
This is because producer cars, the sole source of traffic for these and many other short line hopefuls, face a difficult future in an open market environment, despite protests to the contrary by Conservative politicians and anti-CWB farmers.
 
The problem is that currently the CWB is the only grain marketer encouraging producer cars. Grain companies are antagonistic to producer car loading since it takes away their opportunity to earn handling charges. Indeed, the advantage of producer cars occurs precisely because farmers using them avoid elevator handling charges.
 
But those opposing the CWB, like David Anderson, the MP for the Golden Prairie area, say it is not a problem. The right to secure and load producer cars is guaranteed in the Canada Grain Act. While this may be true, there is a lot more to the story.
 
Producer cars work for several reasons, but price pooling and orderly marketing are the big ones. Because of price pooling, farmers filling rail cars in July can expect to receive the same total return as those loading the previous September. This is important because producer cars don't move just whenever a farmer wants to load one. The CWB fits them into a larger shipping program, and calls them forward as they are needed. Price pooling will end when the CWB monopoly ends, since running a voluntary price pool has never been successful.
 
Without orderly marketing and price pooling, farmers will attempt to sell into price spikes, and the CWB will have to play that game along with the grain companies. However, during these occasions, there will be more grain pushed forward than the system can handle. The railways will concentrate on servicing 100-car loading facilities, and single cars, as producer cars are, will be at the bottom of the priority list. Farmers waiting to get producer cars will miss the price spikes as they watch their neighbours grain go to high-throughput elevators. Producer cars will rapidly lose their lustre.
 
The CWB itself will be much affected. Losing its single desk will inevitably mean downsizing, and far fewer sales. (This presumes that the CWB can get inland collection and terminal space from its competitors at reasonable rates and in a timely way.) It likely will no longer sell all and every grade of wheat and durum. Farmers who want to load cars will have to limit them to the grades and types of grain the CWB is able to sell.
 
Giving the difficulty of obtaining producer cars when prices spike, and the limited number and type of sales a voluntary CWB could make, farmers will recognize the risk inherent in trying to load producer cars. The grain companies will go out of their way to entice farmers who load producer cars to use their elevators instead. For a short line to succeed, it needs all the traffic it can generate. Even the most optimistic scenario would see producer car numbers reduced much below current levels. The CGC guarantee of access won't mean much in the end.
 
© Paul Beingessner