Issue 248: July 2007

in

Railways for Whom?

 

The history of Canada and Canadian agriculture is tightly bound up with the history, politics and financial interests of its two railroads: Canadian National and Canadian Pacific. Both played a major role in the colonization of western Canada and the shape of its agriculture as a function of evolving federal policy.  CP was always a private corporation, CN was privatized in 1995.

Great Northern Grain Terminals Ltd. (GNG), a small northern Alberta grain company, lodged a complaint of discrimination against Canadian National earlier this year for its systematic favouring of the largest of grain shippers, such as Cargill, ADM and Bunge, while making it virtually impossible for smaller grain shippers to get any kind of reasonable service from the railroad. In deciding in favour of GNG, the Canadian Transportation Agency said:

“In establishing car supply policies that have restrictive terms and conditions like minimum order durations that exclude significant segments of the shipper community, CN unilaterally becomes the arbiter of which of its captive shippers are eligible for a competitive advantage. Through its virtually exclusive control of rail service in portions of the western Canadian grain market, CN creates an imbalance and, inevitably, as seen in this case, a failure in the marketplace.”

The federal regulator ruled that the railway had discriminated against small shippers by dropping a program that allowed shippers to forward book 50 rail cars at a time and by implementing an incentive program for companies that can load 100 cars for a minimum of 30 consecutive weeks. “The agency finds that CN’s current car distribution options constitute a significant deterioration in the service options previously.”

Under the system introduced by CN a year ago, if a company such as GNG wanted cars, it had to bid on them in an auction and pay a premium. CN argued that in a deregulated system it has the right to offer different programs to encourage more efficient grain movement and the CTA doesn’t have the authority to interfere. . . Despite the deregulation of grain transportation in recent years, the CTA ruling stated, Canada’s railways are still obliged to meet what’s called ‘common carrier obligations’ and a ‘specified level of service’.”                                           – MC, 12/7/07

The CTA ordered CN to accommodate GNG’s shipping needs, make its car allocation process ‘fair, fully transparent and not discriminatory,’ have enough cars to meet its level of service obligations, offer 50% of its cars through general allocation, make 50-car blocks the minimum for advance car orders and allow shippers to trade among themselves. The CTA also ordered CN to stop auctioning cars to the highest bidder (this being important because the railways can influence the price by restricting the number of cars on offer).

fat cat

It’s not just the grain shippers that have problems with the railroads. Pulse Canada (pulses include lentils, beans, peas, chickpeas, fababeans and fenugreek) says that shippers of pulses (“special crops”) face problems such as timely access to railcars and containers, unfair allocation of equipment, dealing with rail cars that are unfit for transporting food items, and inconsistent and unreliable service from the railroads.                           – WP, 12/7/07

How the railroads will respond to, i.e. obey, the CTA decision remains to be seen. One must not underestimate the historic political power of the railroads, which retain an army of lobbyists – 117 of them – in Ottawa. And it was the Federal Government that sold off Canadian National and deregulated the railways  in the first place. 

“The Canadian National Railways (CNR) was created between 1918 and 1923, comprising several railways that had become bankrupt and fallen into federal government hands, along with some railways already owned by the government. . . In 1992 a new management team led by ex-federal government bureaucrats, Paul Tellier and Michael Sabia, started preparing CN for privatization by emphasizing increased productivity. This was achieved largely through aggressive cuts to the company’s bloated and inefficient management structure, widescale layoffs in its workforce and continued abandonment or sale of its branch lines. . . The CN Commercialization Act was enacted into law on July 13, 1995 and by November 28, 1995, the federal government had completed an initial public offering (IPO) and transferred all of its shares to private investors.” – http://en.wikipedia.org/wiki/Canadian_National_Railway

Nor should one assume that the role and responsibility of the railroads is to serve farmers, shippers, or even Canada. A week after the CTA decision concerning GNG the business press reported that a private equity consortium led by Brookfield Asset Management and including Goldman Sachs & Co and Caisse de dépot et placement du Québec was “stalking” Canadian Pacific Railroad. The aim of such a buyout, of course, would be to squeeze greater profits out of CPR for the benefit of its owners. In 2006 CPR reported a profit of $796 million on sales of $4.58 billion, or 17%. That’s a great deal more than any farmer’s GIC or savings account is providing, and a great deal more than the farm itself returns.  It should be noted that Brookfield is not an innocent: until 2005 it was known as Brascan, with a colorful history both in Canada and in South America.

“Brookfield Asset Management Inc., focused on property, power and infrastructure assets, has over US$70 billion of assets under management. We own and manage one of the largest portfolios of both premier office properties and hydroelectric power generation facilities as well as transmission and timberland operations, located in North and South America and Europe.” – <www.Brookfield.com>

As usual, there is probably more in Brookfield’s vision than it appears. In this case, it might just be the money to be made by the railways in hauling potash from Saskatchewan to a deep water port to the west or south – or to the US corn belt.

track and elevator

Global demand, much of it highly subsidized, has enabled the fertilizer companies to substantially increase their prices this year.  Saskatchewan’s potash mining companies (Potash Corp., the world’s largest potash producer  in terms of capacity with 22 per cent of the total), Agrium Inc. and Cargill’s Mosaic Co. are among the beneficiaries. Worldwide, the three crops using the most potash per hectare planted are sugar cane, palm oil and corn, in that order. Saskatchewan sells vast quantities of potash to Malaysia, the world’s biggest supplier of palm oil; Brazil, the world’s second largest producer of ethanol, produced from sugar which requires about four times as much potash per hectare as wheat or soybeans; and the US, for corn production.. This year, farmers in the US have planted the highest number of acres with corn since 1944 as the subsidized demand for ethanol has boomed. Of course, Monsanto, DuPont and Syngenta, as suppliers of seed corn, are laughing all the way to the bank as well.

 

#248: July 2007 TOC
Railways for Whom?: -- who controls the agenda of the country's major grain transportation?
Organic farming could feed the world -- new research supports small scale organic
    Pesticides reduce fertility: information from the Proceedings of the National Academy of Sciences
    Is organic food healthier?: research shows higher levels of anti-oxidants
    Win some, lose some: Britain's largest retailer moves to reduce trucking - and cuts Prince Charles off the supplier list
Control of Livestock Genetics -- excerpt from a publication on centralized control of livestock production
Peruvian Region Says No to GM Potatoes -- in an effort to save the centre of origin for this crop
Banana Wars -- a book review
A NAFTA Precedent -- it's not food, but Canada Post win against UPS is a precedent
Improved Food Safety in Sub-Saharan Africa -- new research results on combatting aflatoxin