NFU says farmers bear enormous costs from Ritz’s failure to plan

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Although grain movement has been down since the beginning of November, 2013, Minister Ritz and Minister Raitt announced that railways would be required to double the grain volumes currently being shipped just as those companies were ready to gear up anyway.

Ian McCreary, former CWB director and National Farmers Union (NFU) member, asked “Why now? Why wait four months to announce concrete actions that could have been taken much earlier?“

The railways will have four weeks to ramp up to ship a combined total of 1,000,000 metric tonnes a week or be penalized up to $100,000 per day for non-compliance.

McCreary describes the problems with grain transportation as a big picture issue. “The fact is that with no organization to hold the railways accountable for service levels, the companies provided the amount of service that was convenient for them.”

The transportation chaos is exactly what McCreary warned the Conservative government about on November 2, 2011, at the legislative committee on Bill C-18. He clearly explained that without mechanisms to:

“allocate the constrained capacity of the west coast handling facility in an economic way that allowed the optimal customers to be transferred to the other port …, everyone is going to want to push … through the west coast. You will have tremendous economic pressure on the west coast."

McCreary further predicted what would happen to grain prices when port capacity became overburdened, saying,

“…When the export embargo by the Soviet Union [1980] was in place, what happened to the cost of moving grain through U.S. west coast terminals? For those who watch markets, the difference between a rail offer and a port offer on dark northern spring wheat following the introduction of the freight embargo was $3 a bushel...That's right. It was $100 a tonne.”

It turns out that McCreary was equally correct in predicting the direction of the price differential between elevator and port. The CWB reported on Feb. 26, that farmers are receiving an average of $4.69/bushel for wheat, and wheat at Vancouver port has a price of 11.38/bushel. Thus, grain companies received $6.69 per bushel ($245 per metric tonne). Elevator company costs (freight and elevation) are about $70 per metric tonne, leaving the elevator with about $175 per metric tonne. By year-end, demurrage is estimated to approach $100 million – the highest that Canada has ever paid. However, those demurrage costs would be fully paid for with the first 569,000 metric tonnes shipped, which is less than one week’s grain movement.

Ken Larsen, Director of the Canadian Wheat Board Alliance, pointed out that when Minister Ritz was questioned about being warned about this crisis two years earlier, Ritz answered, “We saw this coming” - referring to his ‘Crop Logistics Working Group’. “For a Minister and his advisors to have seen this coming and to have done nothing until now is egregious mismanagement,” said Larsen. “Rail transportation on the Canadian prairies doesn’t work without healthy government oversight, and that lack of oversight is sinking farmers more deeply in debt.”

According to Larsen, this isn’t the first time farmers have faced delays in getting grain to port and loaded onto ships.

“In 1997/98, the newly elected farmer-directors of the CWB were confronted with poor grain movement at a cost of $18.7 million in demurrage in 1996/97,” he stated. “That time, the railways pleaded that there was snow in the mountains.”

Larsen continued, “The CWB launched a level of service complaint with the Transport Commission and won, then sued both CN and CP for poor performance.  CN threw in the towel and paid an undisclosed sum and CP lost its case and had to pay $15 million to the CWB.”

“In the following year (1998/99), however, the CWB collected $6.6 million in despatch (net after demurrage was paid) from ship owners because ships were loaded more quickly than anticipated. Because the CWB had no retained earnings, those despatch dollars were always returned directly to farmers. The previous year (1997/98) net despatch earnings were $4.465 million. This trend of earning dispatch for farmers’ benefit continued until Ritz killed the CWB,” Larsen commented.  

“Now farmers are bearing the costs of Ritz’s lack of planning to transition the Canadian Wheat Board’s grain transportation coordinating function to another body. No one is in place to make sure that grain is transported to port and available for ships to load in an efficient and orderly way,” noted McCreary. “This is a preventable failure, and it’s costing prairie farmers multi-millions.”

Organizations: Canadian Wheat Board Alliance, CP, Crop Logistics Working Group Transport Commission National Farmers Union

Geographic location: U.S., Vancouver, Canada

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