Saskatchewan says Ottawa needs to take more aggressive steps in grain backlog

REGINA – The Saskatchewan government and agriculture groups in Western Canada say federal legislation aimed at increasing the movement of grain doesn’t go far enough.

The legislation introduced Wednesday would amend the Canada Grain Act and the Canada Transportation Act in a bid to clear grain that has been sitting in bins across the Prairies because of a rail transportation bottleneck.

Saskatchewan Agriculture Minister Lyle Stewart says in a letter to federal Transport Minister Lisa Raitt and Agriculture Minister Gerry Ritz that the province is disappointed.

“The transportation problems over the last several months negatively impacted producer returns and severely eroded Canada’s export reputation as customers sought out more reliable sources for their grain,” Stewart wrote Thursday.

“Given the critical nature of the problem and the railway’s historical behaviour, our government believed more aggressive steps were required.”

Stewart also said he thinks “the railways came out the big winners” in the legislation.

The railroads also expressed disappointment with the legislation, but say they’re the victims of “heavy-handed regulatory intrusion” by the government.

The proposed law would allow the Canadian Grain Commission to regulate how much a grain company would have to pay a farmer if the company didn’t meet delivery dates set out in a contract.

It also aims to extend what are called inter-switching limits from 30 kilometres to 160 kilometres in Alberta, Manitoba and Saskatchewan. Most grain elevators on the Prairies are only served by one railway and the federal government says expanding inter-switching would allow more service by more rail companies.

Another change would enshrine a previous government order for Canadian National (TSX:CNR) and Canadian Pacific (TSX:CP) railways to move a minimum amount of grain or face a penalty of up to $100,000 a day.

Stewart told reporters at the legislature that one of his biggest concerns is that the legislation ends in August 2016.

“It can be renewed by the government in power at their whim, but that doesn’t give much of a sense of security to producers or shippers,” he said.

“And I don’t think it gives much guidance to railways as to what they really need to do as far as reinvesting in equipment and rolling stock and that sort of thing. That to us is a substantial deficiency.”

Franck Groeneweg, chairman of SaskCanola, said the legislation is a good first step to help move grain to ports, but more is needed.

The 2016 sunset clause worries him too.

“We don’t want to make it a Band-Aid for the short term here. We want a permanent solution, something that’s going to help all of the Canadian economy really,” he said.

Groeneweg, who farms in Edgeley, Sask., northeast of Regina, said he had contracts that were made in September for delivery in January, but a lot of that grain is still sitting on his land. That means he’s waiting for the income to pay his bills.

The Western Canadian Wheat Growers Association said there are some good things in the legislation such as the inter-switching change.

But it’s not enough to adequately tackle the backlog in grain shipments, the association suggested.

“Grain prices to farmers will remain artificially depressed until the backlog is cleared up and the elevator system has the capacity available to offer competitive bids for our grain,” association president Levi Wood said in a news release.

“As long as the elevator system remains plugged, price offers to farmers are likely to remain below market value.”

CN and CP have blamed the backlog on the record size of the harvest and extremely cold weather. The companies have said they had to use shorter trains during freezing temperatures to ensure brakes could be used properly and that meant less capacity.

CN said Wednesday that it was “disturbed by Canadian government legislation introducing heavy-handed regulatory intrusion into rail grain transportation.”

President and CEO Claude Mongeau said an outsized crop and winter conditions were beyond the company’s control. The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future, he said.

Canadian Pacific issued a news release Tuesday calling the legislation “grossly unfair” and saying it will do nothing to increase supply chain capacity in the grain handling system.

CEO E. Hunter Harrison said it “has the potential to cause great damage to the Canadian rail transportation system that is unquestionably the best in the world.”

He said the expansion of regulated interswitching could seriously impact Canada’s competitiveness as it effectively transfers traffic that normally would move over Canadian railways and ports to U.S. railroads and ports.

That could result in job losses, reduced investment and the dampening of the Canadian economy, said Harrison.

“Canada’s grain handling system is just not built to handle this record amount of grain,” he said. “While it is easy to blame the railways for ‘dropping the ball,’ it ignores the facts.

“We need to move away from reactionary legislative interventions that target unfairly one participant … Instead we should all focus on commercial solutions to maximize overall capacity in the grain supply chain.”