Grain backlog points to need to modernize supply chain

Farmers and farm advocates are keen for Ottawa to pass its legislation geared at getting rail companies to move the huge backlog of grain sitting on Prairie farms and farm silos.

But critics are concerned about trying to regulate the relationship between grain farmers and the railways at a time when the entire industry is in flux because of the federal decision in 2011 to eliminate the Wheat Board.

Brenda Tjaden Lepp, co-founder and chief analyst for FarmLink Solutions, sees the legislation, which has passed third reading in the House of Commons and is now before the Senate, as real recognition of the importance of getting Canadian grain to world markets.

This business with of the railway backlog – the biggest gift is that it’s forcing everyone in the industry to talk about what’s needed to really build a strong economy for the future- Brenda Tjaden Lepp, FarmLink Solutions

“We just want this bill to get passed so we can move forward and be able to service world markets. It’s pretty simple. We have way more of it than we could ever consume in Canada and we have to get it to market,”  Lepp said in an interview with CBC’s The Lang & O’Leary Exchange.

The record 2013 grain harvest clogged the rail system in western Canada and many farmers missed their deadlines to get grain to the ports. Railways said they were transporting record amounts of grain and were hampered by a harsh winter.

A federal order in council passed in February ordered the railways to ship more wheat.

“My concern is for farmers and their ability to manage their businesses as well," Lepp said.

"A lot of the discussion and the debate recently has been about the balance of power between the railways and the grain companies, but all of those problems just get transferred on to farmers – whether it’s discounted prices or delayed payment for their grain or even being able to convert grain into cash,” she added.

The legislation asked railways to ship a minimum amount of grain and farmers had called for penalties for railways that didn’t meet that quota.

After the severe bottlenecks that farmers faced this year in getting grain to market, some farmers, like Manitoba’s Dean Harder, were yearning for the days of the Wheat Board, the agency that guaranteed farmers a market for their wheat and managed the relationship with the shippers and the grain companies.

The wheat board would have survey farmers early in season, seen the record harvest coming and arranged to have shippers ready, Harder said in an interview May 15.

After the Wheat Board

Lepp said the problem is that Canada's grain supply system has not been modernized. There are no market mechanisms so farmers can hedge prices with contracts or strike a fair business relationship with railways.

While the U.S. and Australia have modernized their rail system along with their grain supply system, Canada is still dealing with the vacuum created by the absence of the Wheat Board, she said.

“Everyone in the grain business today, lived with the monopoly for their entire career,” she said.

“Now that it’s gone, there’s a lot of really murky cash price signals going on. There’s confusion in the markets. This business with of the railway backlog – the biggest gift is that it’s forcing everyone in the industry to talk about what’s needed to really build a strong economy for the future.  What are the pieces that are missing in order to capitalize on the enormous opportunity that the grain industry is opening up.”

Act is a 'blunt instrument"

She said the Fair Rail for Grain Farmers Act is a “blunt instrument” but sees it as a good place to start in addressing the imbalance of power between grain producers and the shippers and grain companies.

The act seeks to introduce accountability in contracts between shippers and the railway and increase the transparency of the supply chain.

Mary-Jane Bennett, a research fellow with Frontier Centre for Public Policy who has studied grain and rail regulation in Canada, says the bill is unnecessary.

She argues the railways have done as much as they could to move grain, given the harsh winter.

This legislation “says that grain gets priority service and other industries that have helped fuel the economic recovery, such as potash and oil have to sit idle while grain gets priority service,” Bennett told CBC.

Regulating has the effect of decreasing new investment, she said.

 "When you’re at capacity, because you need to add more resources – tunnels, bridges infrastructure is necessary – but the railways need to operate in a good economic climate that encourages investment. What this bill does by reregulating the railways on volume, price, service – across the board, it affects efficiencies,” Bennett said.