The deregulation of grain trains

Hey there, time traveller!
This article was published 15/08/2015 (3874 days ago), so information in it may no longer be current.

Reading through the complicated regulatory formulas used to keep a lid on Prairie farmers’ freight costs is about the best non-medicinal cure for insomnia around.

But debate over the fate of the maximum revenue entitlement (MRE), as it is known in farm circles, is keeping a lot of people in the grain transportation business awake these days.

The entitlement was introduced in 2000 at the suggestion of the railways as an alternative to a recommendation the government introduce open running rights to increase competition on Canada’s rail lines.

It is designed to protect grain shippers who are captive to the railways for moving grain to export, while giving the railways the flexibility to offer incentives for more efficient car-loading facilities within a limit based on all shipments for the year.

If they go over that limit, they pay restitution to farmers in the form of contributions to the Western Grains Research Foundation.

The MRE was never intended to be a long-term policy, but rather part of a five-year transition to a more commercialized (read: deregulated) pricing environment, in which freight rates were controlled by market forces (read competition) rather than regulation.

Fifteen years later, it’s still in place. In the discussion that emerged from the abysmal railway performance through the winter of 2013-14, axing the MRE has increasingly been portrayed as a quid pro quo for better service.

Service is indeed key to getting western grain to markets and there is little argument it has been lacking. There is also general agreement axing the MRE would result in farmers paying more.

But would ending the MRE result in better service?

Murad Al-Katib, the grain sector lead adviser to a review of the the Canadian Transportation Act, hinted at a recent grain transportation forum in Saskatoon the two are linked.

“I cannot recall one non-revenue entitlement sector talking about how their rates were their biggest concern — rates did not come up on my committee,” Al-Katib said. “Service is really the issue everyone is talking about.”

Mary Jane Bennett, representing the Frontier Centre for Public Policy, told the same conference railways are being choked by regulation under the MRE.

Bennett cited the 2013-14 winter as the result of too much regulation.

But a newly released report by a subcommittee of a federally appointed Crop Logistics Working Group says while there is a relationship between a lack of railway competition and the level of service, there is no correlation between the MRE and the level of service.

It’s an important distinction, because the MRE exists specifically to address the lack of competition.

The MRE doesn’t limit how much grain the railways move or how much they earn. It merely limits the average rate they can charge per tonne, adjusted for inflation and the distance travelled. In other words, the more grain the railways move, the more they earn.

The report noted commodities that don’t fall under the MRE criteria do not receive better service or lower rates.

The report concluded in the absence of more competition, railway service is driven by shareholders’ priorities rather than shippers’, and the railway revenues are routinely as close as possible to the MRE without going over.

So on one hand, the MRE is working; it protects farmers from being gouged in a non-competitive market. But on the other, it also means the railways earn more hauling grain than they would if they had to compete for it.

It’s unlikely a solution will be found to the non-competitive nature of the Canadian rail network any time soon. That leaves regulatory intervention as the best means of assuring reasonable service at a reasonable cost.

 

Laura Rance is editor of the Manitoba Co-operator. She can be reached at 792-4382 or by email: laura@fbcpublishing.com