Wednesday August 20, 2014

Grain movement needs long-term fix


To its credit, the Saskatchewan Party government is demanding even tough measures to deal with the backlog of grain.

After the joint announcement by federal Agriculture Minister Gerry Ritz and Transportation Minister Lisa Raitt the Premier Brad Wall’s government put out a news release demanding mandatory service level agreements even more cars and stiffer penalties if the rail companies did not move their prescribed amount of grain each week.

While the federal order in council called for 11,000 cars a week and fines of up to $100,000 per day for failing to meet those targets, the province upped the ante to 13,000 cars a week and fines of $250,000 a day.

And besides the mandatory service agreements with reciprocal penalties for non-compliance, Saskatchewan said fines collected should go directly to benefit the producers.

All are fine notions directly benefitting whom the government should be serving — the Saskatchewan farmer and the province’s economy as whole.

And, no doubt, these suggestions were a direction reaction to complaints from farmers and others that initial efforts of Ritz and Raitt were just not tough enough.

But while all this tough talk is great and while there can be absolutely no doubt that Ritz and company were far too slow in addressing the key issues on the grain movement file, this has to be about more than making amends for the problems of this year.

This has to also be about moving forward to address rural Saskatchewan’s pending problems of future grain movement, as well.

And as it stands right now, it just doesn’t seem like we’ve moved ahead. If anything, we seem to be moving backwards.

As noted by Barry Prentice, professor of supply chain management at the University of Manitoba, in a recent article in the Financial Post, this does all come down to an issue of 30-per-cent more grain than the five-year average.

Admittedly, this surge could clearly have been anticipated by government and should have been anticipated by the railways that have instead chosen to shed engines and cars and crews to maximize profit.

In that regard, Prentice’s position would seem far too hard on a federal government that “has chosen to listen” and far too soft of the railways for “not supplying enough railcars, locomotives and crews to move this unexpected demand for service.”

But the economics professors makes a fair point that the excess capacity needed to move that grain simply requires cars and crew. And someone will have to pay for it.

Perhaps Prentice takes his sympathy for the railways too far by suggesting “severe penalties on the railways” is “bad management of transportation policy” because it’s only natural to run shorter trains in winter.

But he may be right that the extra capacity needed to move the volume of grain Ottawa demands or the even higher volume demanded by the Saskatchewan government can only come from one of two sources. Prentice suggests we increase the Revenue Cap and allow the railways to charge higher grain freight rates or force the railways to absorb the costs, internally.

Of course, farmers have little interest in paying more for transportation — especially when there is a grain glut, causing lower prices.

That leaves us with the second choice — demand a higher service level from the railways while capping their revenues from grain. However, Prentice argues that would be a return to the Statutory Freight Rates for grain — the “Crow Rate.”

It was past conservative governments that did away with the Crow, largely because it resulted in the railways charging more to move other commodities and less money put back into the maintenance of the railway system.

This may be where we have to go again — even if this is what got us in the current the mess in the first place.

Murray Mandryk has been covering provincial politics for over 22 years.



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