The Federal Government has established minimum volumes of grain Canada's two rail companies have to move in order to address the issue of an unprecedented backlog of grain.
Prairie farmers harvested a record 76 million tonne crop in 2013, nearly doubling annual production levels. However, transportation issues during the winter months have prevented much of the crop from reaching West Coast terminals, with the Federal Government stepping in on March 7 to address the issue.
An Order of Council was announced today, calling on Canadian National and Canadian Pacific railways to move minimum volumes of grain, plus report weekly shipment totals to the federal Minister of Transport.
The Federal Government is requiring the railways to increase the volumes of grain carried each week, over a four week period, to reach a combined target of one million metric tonnes per week. This target will more than double the volume of grain currently being moved.
The Order also created non-compliance penalties of up to $100,000 per day.
Saskatchewan's Provincial Government was pleased to see this was the first initiative by the Federal Government to address the transportation backlog.
“We had asked for immediate action including emergency legislation to be introduced and we are pleased the federal government has made this commitment,” Premier Brad Wall said. “Clearing this grain transportation backlog has been the number one priority for our government and these federal measures will help our producers to finally get their product to ports."
Saskatchewan Agriculture Minister Lyle Stewart was also optimistic about the federal government's announcement they will also introduce emergency legislation in the near future.
“Today’s federal Order in Council with interim measures is a good first step and we look forward to working closely with the federal government to ensure the emergency legislation includes mandatory service level agreements, reciprocal penalties for grain shippers and railways, and specific commitments for tonnage of grain delivered,” Stewart said.
The provincial government pointed out they will be monitoring producer deliveries to grain shippers and basis levels with the expectation that grain companies will have staff on hand 24 hours per day and seven days per week at both inland terminals and at port whenever necessary.
“Producers have ultimately been left bearing the cost for this crisis and we fully expect every player in the supply chain to do their part to get this grain moved,” Stewart said. “This includes both grain companies and railways and we expect penalties to be levied against either party if they are not honouring their commitments.”
The Saskatchewan Association of Rural Municipalities voiced their support for the Order which takes effect immediately.
“The announcement today was something we were anxiously awaiting; Saskatchewan grain producers have been asking for actions to address the situation and these measures are an attempt to address both short and long term concerns,” said SARM President David Marit. “We look forward to working with the Federal Government on this new legislation as it is drafted.”
Cereals Canada said the Order in Council was an important step in addressing Canada's clogged grain transportation system.
“The Order in Council issued today is unprecedented. This is a demonstration of the importance to the Canadian economy of the grains, oilseed and special crops industries,” stated Greg Porozni, Chair of Cereals Canada’s Board of Directors. “Restricted grain movement over the last six months has placed a significant economic strain on Western Canadian farmers. The announcement today will help get income flowing to producers again. This is not just good for farmers, it is good for Canada.”
The Alberta Wheat Commission supported the initiative, but highlighted that the delay in rail service has already had a significant economic impact on western Canadian growers with numerous ships waiting to load in Vancouver and Prince Rupert and demurrage charges now exceeding $25 million. In addition, news out of Japan indicates that they plan to buy more grain from the United States instead of Canada due to poor delivery and no clear resolution to the bottlenecks. Estimating there has been a $2 billion to $4 billion cost impact on growers, they noted Canada’s reputation as a quality and reliable supplier has been hanging on the line.
“Today’s announcement demonstrates that the government is committed to ensuring Canada remains a primary and reliable supplier of agriculture products, and recognizes the long-term, negative impact that poor rail service can have on Canada’s international reputation,” says Kent Erickson, Chair of AWC. “The rail backlog has resulted in significant costs to the agriculture industry, and AWC applauds the actions of the government for the immediate and long-term solutions that are being implemented.”
However, the Saskatchewan NDP Caucus says the reaction by both levels of government has been too slow and too weak to help producers with grain still in the bins.
They argue the penalties for not moving the grain, and the total amount of commodity they are required to move, are not sufficient to make a difference. They stated the 11,000 car per week total car requirement is about the same number of grain cars which were moved in the fall.
“The federal government is treating the two big rail companies with kid gloves – and the Sask. Party government is patting them on the back for it,” said Cathy Sproule, NDP agriculture critic. “Today’s announcement does nothing to compensate producers that have already lost billions, and the 5,500 cars required from each company only reflects what the rail companies have already promised for spring. This just isn’t good enough to resolve the crisis, and it hasn’t been well received by the producers I’m hearing from today.”
Sproule added that a $100,000 fine is a small price to pay for the massive corporations, but grain sitting unshipped is having a major financial impact on producers, many of whom have bills and loans piling up and no cash flow to buy their inputs for the coming seeding season.
The NDP says about 14,000 cars are required immediately to move grain – the minimum likely necessary to get the grain out of the bins. Adding open-running rights so other rail companies can step in to help could be an important part of the solution.
“The federal government is continuing to fail producers, and the provincial government is failing to stand up to them,” said Sproule. “Now, with four more weeks to drag their feet before meeting a low bar – or pay low penalties – producers need more action, faster to resolve the grain transportation crisis.”