April 5 – Will Bill C-49 Be Enough to Fix Canada’s Rail Problems?

We’re not going to cheer until the day that grain movement legislation is finally passed in Ottawa. The Bill C-49 has passed the nation’s Senate.

One of the things that we don’t do is spend time cheering on policy proposals out of Ottawa or Washington D.C. Too many times good intentions lead to bad policy, which is why we’re holding our breath to see just how serious Canadian lawmakers are about fixing one of the biggest problems plaguing the grain sector today.

We’re not going to cheer until the day that grain movement legislation is finally passed in Ottawa. The Bill C-49 has passed the nation’s Senate. That has groups like the Western Canadian Wheat Growers Association, Grain Growers of Canada, and the Alberta Wheat and Barley Commission excited about the deal.

And why shouldn’t they be?

The grain shipping crisis has been downright infuriating for farmers facing massive shipping delays.

 

Shippers Can’t Meet Hopper Car Demand

As we noted back on March 1, there is a huge backlog affecting the Canadian grain sector. The worst backlog in years has been the subject of scathing criticisms of Justin Trudeau and his government. [1] It has spurred fears that farmers may not have enough storage for the 2018 crop unless the massive glut of supply is moved.

Recently, Dan Mazier at Keystone Agriculture Producers told local press in Manitoba that the province alone has received 28,000 fewer hopper cars than were promised. He said that it would require up to 6,000 cars arriving each week through August. [2]

The broader numbers don’t look very good. The Ag Transport Coalition reported in its latest weekly performance update that CN and Canada Pacific supplied just 67% of the hopper cars orders for the week. Such fulfillment problems have fueled the demand for change in Ottawa.

 

Bill C-49 Passes the Senate

Bill C-49 aims at establishing greater accountability for grain shipments by the railroads.

If this feels a bit like déjà vu, you’re not wrong.

Back in 2014, Ottawa had passed Bill C-30 or the “Fair Rail for Farmers Act.” This was aimed at getting rail companies to expedite grain shipments or pay significant fines. The law, however, had a sunset clause, and it expired on July 31, 2017, after one extension.

The new bill would effectively put monetary penalties in place if any party (the railways or the grain companies) don’t adhere to their contracts moving forward.

This was an original portion of the bill initially passed by the House of Commons.

But there are 19 amendments that trade groups requested from the Senate that will force another vote on the bill. Three of them tie directly to the agricultural sector.

The most important is an “own-motions power” that will authorize the Canadian Transportation Agency to conduct investigations into poor rail service. This is similar to a power held by the US Department of Transportation.

The is also a provision that includes soybeans into the Act’s Schedule 2. This guarantees soybeans and farmers rate protection through the Maximum Revenue Entitlement. Soybeans were previously excluded from this “revenue cap” that limits the amount of revenue that Canada’s two biggest rail companies can collect after handling certain bulk crops.

A third amendment would improve a shipper’s access to long-haul inter-switching, meaning they can change carriers along the rail line. This provision would allow a customer to trigger that provision if the railway is failing to meet obligations.

According to consulting firm McMillan, shippers that have access to just one class 1 rail operator at their origin of destination can “apply to the Canadian Transportation Agency for a “long haul inter-switching order.” By decree, this first operator would need to ship the grain company’s haul to “the nearest interchange at a rate determined by the Agency, for furtherance beyond by a connecting federal railway company.”

The argument is that the threat alone of inter-switching would increase accountability.

But not everyone believes that this law will do enough to hold railways accountable.

 

Does C-49 Create Real Accountability?

The most blistering criticism of the bill came from Ken Larsen at the National Farmers Union.

Last month, he issued a scathing op-ed that argues the bill effectively deregulates the railways and said that the real focus should be on grain companies’ power over farmers [2].

A similar sentiment was shared in March by the NFU’s 2nd Vice President Cam Goff, who argued that the bill doesn’t empower farmers. The focus, he said in an interview with West Central Online, of the bill is giving grain companies the ability to obtain penalties from the railways. Goff has said that this not only does nothing for the farmer, but it could ultimately create a scenario that hurts local producers.

“Unfortunately, in my opinion,” Goff said in the interview. [3] “there’s a possibility — if that’s not policed properly — if the railways don’t think they that they’re gonna be able to drop a train off, they won’t even bother to try to drop a train off. They’ll just say, ‘oh well forget about it, we’ll take that engine and crew and drop off something else,’ and they’ll wait until we absolutely have nothing else to do before they drop off the cars for elevators.”

The NFU wants more than just the Canadian Transportation Agency to conduct investigations. He has called for an independent body of arbitrators – one that includes farmers – to resolve disputes and ensure compliance between the rail companies and the shipping companies.

It’s not the worst idea. Rather than having the bureaucracy of the federal government (which has little incentive to expedite investigations), this matter would be addressed at the local levels where decisions could move faster due to the incentives tied to the farmers’ livelihoods.

Finally, remember that Brennan has previously called out the NFU for some bad math when it comes to estimating wheat prices and incorrectly comparing them to near-record levels in 2012.

I talked to him about the NFU’s proposal for rail and he said it’s actually not a bad idea.

Brennan also said though that any ideas today are better than the status quo prevailing and grain not getting moved.

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.