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Mandated Grain Movement - Post Mortem
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Contact:David Walker
Edmonton, AB
Canada
phone: +01 780 434 7615
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The federal government's program mandating levels of grain movement during 2014 and 2015 appears to have achieved nothing in terms of the volume of grain moved. It damaged critical relationships within the industry. (870 words)
It is now about 18 months since the federal government started dictating to the railways about how they should operate their grain movement activities and about six months since the program was abandoned. Further, a couple of months with adequate supplies from the 2015 crop available for shipment now allow for an assessment on how well the federal government program faced up against the current imperative of market demand for grain transportation services.
The Federal Government program started in March 2014 with an order in council under the Canada Transportation Act and the pretext of an "extra ordinary disruption". This was extended several times under hastily enacted Fair Rail for Grain Farmers' Act. It was quietly abandoned in March of this year.
At a political level, the government seemed less than comfortable with its role. It was late on to the job. That the railways had a challenge meeting grain transportation needs was apparent in the fall of 2013 as soon as the massive size of the 2013 crop became apparent. The five-month delay was surely the result of more than administrative inertia. And the subsequent eleventh hour extensions to the program gave the impression of uncertainty. Ottawa was, of course, faced with major lobbying by Prairie farm interests, which are always easy to muster for any battle against the railways. But still governments are elected to lead rather than follow, even if any action conciliatory to the railways is viewed by Prairie policians as being the kiss of death.
In an economic context the first thing that needs to be noted is that prior to the 2013 crop, yearend stocks of grain, an inverse measure of the railways performance in meeting the needs of the grain sector, were at historically low levels suggesting the railways were generally meeting demand for their services.
Further long term trends in exports of bulk grain through Canadian Grain Commission facilities, a pretty good bellwether of railway business, had been flat, Chart 1. The record for exports of the major Prairie grains prior to the 2013-14 crop year was 31.2M tonnes in 1991-92. It also needs to be noted that although grain and oilseeds are important business for the railways, it is not regular or predicable business in the way much of their other business is. By way of example in the crop year following the drought reduced 2002 harvest only 14.8M tonnes were exported, less than half exports ten years earlier.
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Typically the potential volume of grain business available for the railways in any year only begins to be known with much accuracy a few months in advance of the actual shipment period. This certainly limits the ability of the railways to respond in a comprehensive way. Over the five years prior to 2013/14 bulk exports had averaged 28.2M tonnes. Potential supplies for export for 2013/14 were about a third larger than that and eventually bulk exports of the six major grains were 33.5M tonnes. Year end stocks rose by about 10M tonnes.
But the effectiveness of the federal government programs should not be judged by what was shipped or exported that year or what was not shipped, but what might have happened had the program not been in place. The best test is probably what has happened this fall without the program compared with performance last year with the program.
The federal government chose to set up confidential reporting, rather than use publically available information, as a measure of performance. But the sum of primary elevator shipments, producer car shipments and process elevator shipments reported by the Canadian Grain Commission provides a quite comprehensive measure of railway performance, although it includes some limited truck movements.
Using this measure of railway performance during the busy immediate post-harvest period, it seems that farmers did no better last year under the federal program than they have done this year without it, Chart 2. In 2014 average weekly movement over this 11-week period was 1.033M tonnes. In 2015 it was 1.055M tonnes. The difference is, of course, immaterial, as the federal program did not bring, in the final analysis, anything material to the challenge of moving grain.
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In a more perfect world, the railways would have been able to explain to farmers that the extra grain that was harvest in 2013 could not be moved immediately and farmers would have understood this and planned accordingly. The deferral of the extra cash flow should not have been a significant challenge.
As it was, virtual panic gripped the Prairies as though some how the railways were taking advantage of the situation with some unknown agenda in mind. Prices which farmers received from grain companies appear to have been horrendously discounted. It was here that the damage was done. The backlog of grain was moved in not much more than a year at very limited costs to farmers.
Anything done to bridge the gap between farmers and the railways has to be applauded. Anything done to set them apart has to be condemned. This was the failing of the federal government's program - that it exploited differences rather bridged them.
David Walker
November 26, 2015
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