MAY 10, 2000
TRANSPORTATION LEGISLATION ASKS FARMERS TO GIVE UP WHEAT BOARD FOR $6
ALLAN, Sask.-"The railways owe farmers $7/tonne in undistributed productivity gains alone". (see backgrounder for calculation). "Todays reduction of less than $6 gives farmers part of that money and leaves the rest with the railways. It also leaves them with the $700 million they pocketed since 1992 because there was no productivity-gain sharing", said NFU Transportation Committee Chair Terry Boehm.
The governments proposed revenue cap has a major defect in that it will include an inflation-adjustment mechanism but no productivity-gain sharing mechanism. "The reason that we need to make this $178 million reduction today, the reason that railways have been able to pocket $700 million over the last eight years, is because there has not been any provision for productivity gain sharing. This legislation repeats that error", said Boehm.
While the legislation will restrict rate differentials between mainlines and branchlines on single-car movements to 3%, it will not restrict the rates railways can charge on single versus multi-car loading, on high value crops, or during peak shipping periods. Boehm noted that many farmers will see no savings, and some will see cost increases. "A farmer who trucks to a wooden elevator on a branchline may see a small decrease, or maybe an increase in rates. Because the revenue cap gives the railways the power to restructure the system, many farmers will be forced to pay increased trucking costs. The rate reductions for individual farmers will be uneven and, in many cases, eaten up by increases in other costs", said Boehm.
Boehm noted that in return for six dollars of their own money, farmers were being asked to give up the rate cap and the CWB. "If we force the CWB to move to tendering 50% of its grain shipments, this will make it dependant for service and capacity on extremely uncompetitive rail and grain companies, significantly undermine its position in the transportation system, and undermine its effectiveness as a marketer", said Boehm. Most important, he noted, is that "reducing the CWB to a customer of the grain and rail companies will undermine the Boards effectiveness in protecting farmers interests within the system".
"This is not farmer-friendly legislation. The railways gain the end of the rate cap, the flexibility to restructure the system and abandon branchlines, they got to keep the $700 million in undistributed productivity gains, and they avoided competition. For all this, the railways had to give farmers six dollars out of the seven that they owed us", commented Boehm.
Boehm concluded: "This legislation has numerous defects". (see backgrounder) "This is unfortunate, given the tight timeline the government has set for itself. The government is attempting to push through an important and highly-flawed agricultural bill when farmers are seeding. The more farmers see of the details of this bill, the less they will like it".
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For More Information:
Terry Boehm, NFU Trans. Com. Chair: (306) 255-2880 or 257-3689
Darrin Qualman, Executive Secretary:(306) 652-9465
Backgrounder to the NFUs May 10 news release
The legislation announced today contains many significant flaws including:
Role of the CWB
The CWB has clearly said that it is willing to work through tenders, but only where those tenders actually reduce farmers costs. Making tendering mandatory significantly undermines the Boards bargaining position and significantly reduces the incentives for competition on the part of grain and rail companies
Large percentages of tendering affect producers ability to deliver grain. Under 50% tendering, the CWB will not be able to guarantee that it will take all of the grain that a farmer has tendered.
This dramatic reduction in the CWBs transportation role undermines its marketing role. The CWB, like any other commercial entity, needs to have control over the sourcing and transportation logistics for its products.
Revenue cap
The revenue cap will include an inflation-adjustment mechanism but no productivity gain sharing mechanism. This means that farmers freight rates will quickly rise far above railways actual costs.
The legislation only limits differentials between mainlines and branchlines. This leaves the railways completely free to raise rates on single-car loading, high value crops, and shipments during peak periods. This rate-setting flexibility not only gives the railways the power to restructure the system, it gives them the power to capture price premiums that should go to farmers. Under this legislation, branchline abandonment and elevator closure will accelerate.
While rates will fall by $5.92, rates are currently $7/tonne above railway costs (plus a 20% contribution to fixed costs. Last year, the CWB calculated that freight rates were $224 million (approx. $5/tonne) above railways actual costs (plus 20% contribution). Since another year has gone by, this amount must be increased by approximately $24 million (approx. 54"/tonne) in additional undistributed productivity gains. The recent CTA increase would add another $65 million ($1.45/tonne). This totals approximately $313 million ($7.00/tonne).
As railways restructure the system and abandon branchlines, their average length of haul decreases. The announcement today includes no provision to reduce the revenue cap to reflect shorter average hauls.
Railways competition
Both Willard Estey and Arthur Kroeger claimed that they believed that the keystone in any "commercial, competitive, contractual" system was open access and competition between railways. This legislation includes no concrete steps toward competition. In addition, it is likely that there will be half the number of grain companies in five years that there are today. CN and CP are both in merger talks with huge U.S. carriers. Even if there is political will, there are reasons to question whether competition can provide effective constraints on companies or protections for farmers.
Branchlines and short lines
Potential shortline groups are clear: they cannot function unless the system includes legislated revenue sharing or open access. The legislation, as announced, contains neither.
The legislation will also change the "penalties" railways pay when they abandon or transfer track. Railways currently face a permanent rate reduction of $10,000 per mile of track they abandon or transfer. As announced, the legislation would require the railways to $10,000 for only three years.
Roads
$175 million over five years is $35 million per year. This $35 million is divided between three provinces. A given province will probably see no more than $15 million per year. Given that it costs $233,000 to rebuild a single mile of secondary highway, $15 million is a fraction of the increased road costs expected as railways abandon branchlines. Further, the funding ends in just five years.
END
national
farmers union