Farmers for economic freedom
Updates from the Canadian Farm Enterprise Network, Canadian Farmers for Justice and the Prairie Centre. Several of the items appearing here originally appeared in an email list operated by Dwayne Leslie at http://www.prairielinks.com.
web posted June 20, 1999
In search of the truth
By Craig Docksteader
Whether we realize it or not, grain transportation on the prairies is standing at a significant crossroads. The direction we determine to go and the decisions which are made about how to get there are either going to help the prairie grain industry or hurt it bad. On this point there is no disagreement.
In his final report to Transport Minister David Collenette, Willard Estey put it this way, "Canada alone must face the grim reality that remaining competitive in the world grain market depends almost entirely upon reducing and holding to a minimum the cost of transporting grain to tidewater or to rail export point." When considering how to reform the prairie grain handling and transportation system, the stakes are high, the implications broad, and the consequences long-lasting. We can't afford to blow it on this one.
One of the more popular falsehoods, which has significant potential to obstruct the pursuit of constructive change, alleges that rail deregulation in the U.S. was a move in the wrong direction. In support of this position, proponents like to refer to findings of the Alliance for Rail Competition (ARC), a U.S.-based lobby group of rail shippers who are aggressively pressing for changes to rail transportation.
ARC was formed because the U.S. rail transportation system has serious problems. Since 1980, the number of major railroads in the U.S. has decreased from 42 to four. This consolidation of railroads has resulted in a significant increase in captive shippers (shippers who have no competitive alternatives to the railroad serving its location). This, in turn, has led to huge disparities in freight prices for shippers. In some places, shippers can pay up to 200 per cent of what most transportation experts consider to be a full cost and adequate return for a railroad. Although numerous studies have shown an overall decrease in freight costs since 1980, the U.S. system is still in need of significant restructuring.
The implication by those who support excessive government regulation, however, is that the current problems in the U.S. are due to deregulation. They conclude that farmers should be fearful of the Canadian system moving the same direction and should fight to keep tight regulatory control of the railways.
Nothing could be further from the truth.
In spite of critical problems present in some segments of the U.S. system, ARC is not blaming deregulation. In fact, they are insistent that problems exist because attempts to introduce deregulation in the 1980's didn't go far enough.
One ARC publication puts it this way, "Rail customers [including members of ARC] believe free market forces are the best way to ensure that the rail transportation market works best for everybody. More competition and less regulation has worked for the trucking and telecommunications industries deregulation is even coming to the electric utility industry. Rail customers are advocating a competitive marketplace that will lead to greater efficiencies, innovation, better service and lower prices."
ARC even wants to toss out the U.S. equivalent of railway costing reviews. Called a "regulatory determination of revenue adequacy", ARC maintains the regulation has ended up being used "as justification for protecting railroads from competition" and has hurt shippers rather than helping them.
Contrary to what some would have us believe, the Americans are not pressing for a return to a regulated environment. Far from it. They clearly recognize that the solution to inefficiencies and high prices is found in less regulation and more competition.
The same is true for Canada.
web posted June 13, 1999
Reconsidering the Railway Rate Cap
By Craig Docksteader
If asked to pick which one of Justice Willard Estey's recommendations has been the most controversial, most producers would choose the proposed changes to the railway rate cap. More ink has been given to this recommendation than any other. It has spurred letters to the editor, coffee-shop discussions, and good old kitchen-table arguments. It would likely take first place as the most contentious proposal for reforming the prairie grain transportation and handling system.
But it also seems to be the most misunderstood recommendation, fueled more by fears than facts. As one Manitoba farmer put it, "Nobody has explained why the cap needs to be removed, if as the railways claim, rates are going to be lower. Given the past 100-plus years of being screwed by the railways, nobody with half a brain would trust a liberal government and the railways to be endorsing something that is supposed to benefit us."
After years of being subject to a system over which they have no control, many farmers are understandably wary. But if you examine Estey's recommendations for yourself, you will find at least five points which suggest the fears are not supported by the facts:
1. Overall railway revenues from grain freight are guaranteed to drop.
While Estey did recommend that the current distance-based rate cap be repealed, he went on to propose that a ceiling be established on overall grain freight revenues. With the implementation of these recommendations, the railways' earnings from moving grain would still be limited. In fact, farmers would be guaranteed to pay less, not more, for freight, with rates declining by a minimum of 5 per cent over the next three years.
The significant difference is that with the removal of the rate cap, the railways could charge different rates for different lines. Currently, the rate is distance-based, regardless of how expensive or how efficient any particular line may be. This means the railways receive no rewards for efficiencies, and no penalties for inefficiencies. They are protected from their mistakes, and given no reason to offer better service or improve their performance. While this may appear to be advantageous because everyone pays the same price for freight per kilometer, it means the overall cost of the system is higher than necessary, forcing farmers to pay more for less.
2. Disputes over freight rates can be settled through an arbitrator.
In addition to limiting railway earnings on grain freight, Estey insisted that qualified arbitrators be made available to settle disputes over freight rates. Farmers would not be left high and dry with no recourse if rates appeared to be too high on individual lines.
3. Savings must be passed on to producers.
Estey asked for a review of the changes one year after implementation, specifically to ensure that savings are finding their way to farmers' pockets, and not simply being retained by the railways and grain companies.
4. Railway costing reviews would continue.
Estey also expressed support for periodic reviews of the cost of rail transportation, even after moving to a competitive, contractual system. This too, would serve as a check against escalating freight costs.
5. Changes could be implemented on a trial-basis.
Estey recognized that the effectiveness of this recommendation might need to be tested over a period of time before being permanently implemented. In his final report he wrote, "A guarantee of freight cost reduction... would appear to be a sensible plan, at least for a reasonable trial period."
When you tally it all up, the concerns over removing the railway rate cap simply don't figure with the facts. It's a recommendation that producers should reconsider.
web posted May 31, 1999
Prairie Centre launches web site
The Prairie Centre has launched its very own web presence at http://www.prairiecentre.org. The site is still under construction, but up and running. They hope to have it completely updated within the next couple of weeks.
By Craig Docksteader
Don't tell anyone I said so, but at times the Canadian Wheat Board is brilliant. Their effectiveness at marketing the prairie wheat crop might be questionable, but their prowess in manipulating their public image is ingenious. They know where their strength comes from, and they have learned to play that card over and over again, with remarkable finesse.
When you get right down to it, the monopoly of the CWB is essentially cast as the great protector of prairie farmers. Its strength is derived from the perceived need to protect producers from grain companies, railways, and one another. Without the monopoly, grain companies would offer farmers too low a price, railways would charge too high a price, and with no law binding them together a few farmers would unwittingly fall for the ploy, somehow wrecking it for everyone.
This perception has historically garnered a reasonable measure of popular support. With access to markets initially restricted to one local elevator, and access to transportation limited to one local rail line, the monopoly gave many producers a sense of power and protection from those whom they feared would abuse them. In some circles, questioning the effectiveness of the monopoly was like attacking prairie producers themselves and was often accompanied by charges of conspiring with the grain corporations or the railways.
Whether deliberately or instinctively, the Board knows that it must zealously guard this image. To lose it, would be to forfeit the primary defense of the need for a monopoly, which would inevitably lead to the introduction of other marketing choices for farmers. In spite of sweeping reforms taking place in the global grain trading marketplace, the CWB's ability to retain its monopoly status has little to do with its performance as a grain trader. It has everything to do with propping up its paternalistic image as the defender of the prairie farmer.
That's why the Board vigorously opposes the full implementation of Willard Estey's recommendations for the grain transportation and handling system. If the report is implemented in its entirety, it will remove the Board's role in transportation. And if the Board is proven to be unnecessary to protect farmers from the railways, it is only a matter of time until more producers become convinced that the monopoly is also unnecessary to protect farmers from grain companies.
At a time when the monopoly has been the most vulnerable in its 56-year history, the CWB's prolonged attack on the railways has been strategic. In some areas, it has been a virtual trump card for public relations. The fact that the existing transportation and handling system is tragically under-performing, and that farmers pay all the bills and carry all the risks, was virtually lost in the Board's scramble to protect its turf.
By vilifying the railways, the Board effectively buffed its image as
the protector of prairie producers. Even some dual-market supporters
were shaken by the scare tactics and misinformation. Although advocates
of choice in marketing, they suddenly became concerned that they would
not survive without the Board's protection from the railways.
We know what the Wheat Board believes, but the future will be shaped by what farmers believe.
Estey gets a thumbs up
By Craig Docksteader
After almost five months of waiting, the verdict is in on the Estey Report. The press release from Transport Canada stated it boldly, "The government agrees with Justice Willard Estey's vision that the western grain handling and transportation system can be made more efficient, accountable and beneficial to farmers by moving to a more commercially-oriented environment with appropriate safeguards to protect the public interest."
The announcement is good news for prairie producers. It means the industry can begin to shake itself free from the suffocating restraints of over regulation and move towards a more accountable, responsive and efficient system. It means that the business of grain handling and transportation will begin to be defined by commercial contractual arrangements which will force those who screw up to pay for their own mess, instead of simply passing the bill back to the farmer.
Not everyone will see it this way, though. Some producers still feel strongly that Estey's recommendations will take the industry in a direction that is not good for farmers. Especially the recommendation that the rail freight rate cap be repealed and the agreement proposed by CP Rail be adopted.
Even Estey himself didn't anticipate the degree of opposition that this recommendation would invoke from a small but vocal sector of the prairie grain industry. When Estey penned the recommendation he wrote, "It might be said that a consensus on this issue among the stakeholders has been close to being achieved. This Review can see no controlling reason to reject the proposal advanced by CP..."
Ironically, it turned out to be this recommendation that generated the most heat, the most ink, and the most serious accusations against Estey. For suggesting that farmers would be better off in a deregulated environment, he was branded as being in collusion with the railroads. When Estey categorically denied any such bias, suggesting that anyone who believed it was an idiot, he was subjected to another round of sputtering, angry scolding.
Perhaps someone should have warned Estey that those who advocate changing the prairie grain system are regularly accused of being puppets for multi-national corporations. Instead of discussing the merits of the issues, the pro-status quo sector often resorts to attacking the messenger in an attempt to discredit the message.
Fortunately, however, it didn't work this time. In spite of an aggressive, well-financed campaign to trash Estey's recommendations, and in spite of misinformation alleging that U.S. rail deregulation hurt American farmers, support for a deregulated grain transportation and handling system held strong.
And for good reason. Numerous studies conducted between 1986 and 1998 which examined the impact of deregulation on U.S. railway freight rates reported significant reductions in freight costs.
The fact is, that although some freight rates are higher in the U.S. than in Canada, they were even = higher before deregulation. A 1990 report by the US General Accounting Office (the equivalent of Canada's Auditor General) reported that deregulation in rail freight rates resulted in significant benefits for U.S. farmers. The review found that "farm products benefited more than other goods moved by rail. Rates for all farm products moved by rail decreased by 44 percent during 1980 through 1987."
Even in Montana, which is serviced by only a single railway, freight rates on grain dropped immediately by 12 percent on single car rates after deregulation. This was followed by the immediate introduction of multiple car freight rates, which by 1996 were 52 per cent lower than the regulated single car rate.
Like the track record indicates, deregulation will be good for the prairie grain industry, and moving ahead with Estey's recommendations will be good for farmers. It just might take some longer to realize it than others.
Why change is essential
By Craig Docksteader
There is a fair amount of wisdom in the familiar saying, "Those who forget history are doomed to repeat it". So as the recommendations on reforming the prairie grain handling and transportation system move into the implementation stage, it wouldn't hurt to review some of the reasons why significant change is essential. Following are quotations from the Prairie Centre's recent publication "The Prairie Grain Handling and Transportation System It's Time to Move On":
"Around the world, the grain marketing industry is changing. Monopolistic, government-run grain buying agencies are being replaced by private companies. In 1990, 82 per cent of all grain sales were made through government-run agencies. By 1996, the number had fallen to 44 per cent. This means that when the CWB goes to sell farmers' grain today, it is a much different world than it was ten years ago."
"...in 1989, before Brazil and Colombia privatized their grain importing agencies, the CWB only had to sell to two customers in these countries. By 1997 the number had risen to fourteen. In 1989 the average contract size was 30 000 tonnes, falling to 20 000 tonnes in 1997 with a wider variation in the contract size, ranging between 5 000 and 60 000 tonnes. The frequency of shipments also changed, with 50 per cent more shipments in 1997 than 1989. This poses challenges which cannot properly be met under the current handling and transportation system."
"...while customers are becoming more numerous and more specific in their requirements, the current system is having trouble pulling it off. On any given week, the port terminals only have between 52 to 89 per cent of the right product available."
"Much of the grain industry revolves around issues of "fairness" or "equity", a policy which sounds nice, but farmers pay for dearly. For example, when railcars arrive at port, they are directed to a terminal based on equity considerations, not to maximize value for the grain and satisfy customer requirements. Each port terminal is entitled to their "fair share" of railcar unloads, and therefore the railcars are unloaded accordingly, with no regard for efficiency or economy."
"...when vessels come into port to pick up their load of grain, they are directed to a terminal based on vessel requirements and terminal stocks. The Vancouver Clearance Association balances the loading per centage for each terminal to ensure that each terminal is getting their share. There is no penalty to the Clearance Association for multiberth loading or demurrage, which means there are no incentives for efficiency."
"Frankly, nobody cares about efficiency, because it's the farmer who pays the bill anyhow. The focus of the system is on "equity", and all the players are concerned about getting their cut of the farmer's money, rather than having to take responsibility for how well they perform their service and be actively looking for ways to do a better job."
"Vancouver Port has the ability to load ships at a rate of 30 000 tonnes per day. Yet during the last three crop years, only 61 out of 1 400 vessels loaded at a rate of 13 000 tonnes per day or better. That means 95 per cent of vessels were loaded at a rate which was less than half the potential. This is the equivalent of having a hired man who works a half hour a day at just over 50 per cent performance, and drags along the rest of the day at less than half speed. At this rate, by the end of the day he will have accomplished only two hours work."
"The bottom line? The existing system shields those who work in the handling, transportation and marketing of prairie grain from the impact of poor quality work. Consequently, they don't go out of business for doing a poor job, farmers do."
Craig Docksteader is Coordinator with the Prairie Centre/Centre for Prairie Agriculture, Inc. "Where Do We Go From Here" is a feature service of the Prairie Centre.
Prairie Centre/Centre for Prairie Agriculture, Inc.
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