Farmers for economic freedom
Updates from the Prairie Centre/Centre for Prairie Agriculture in
web posted April 23, 2001
By Craig Docksteader
In a recent speech given at the Canada Grains Council, CN President Paul Tellier made a bold proposal: The prairie grain industry should work together to slash rail car turnaround times in half. If it were achieved, such an accomplishment would be one of the most significant steps forward for the prairie grain industry in the last century.
Despite numerous studies, reports and commissions carried out over the last 100 years, efforts to improve the performance and efficiency of the prairie grain handling and transportation system have thus far been largely frustrated. Even the Estey/Kroeger process appears to have accomplished little. After more than three years of meetings, presentations, committees, sub-committees, working groups, hearings, analysis, debate and reports, the results are questionable, the progress pitifully slow, and the gains to farmers negligible.
Tellier's comments underscore this reality. Despite the political rhetoric of the past few years, the prairie grain transportation and handling system is still failing. Instead of making substantive changes, the federal government opted for political expediency, tinkering around the margins instead of tackling the more substantive issues. Instead of moving ahead, the system is now bogged down in haggling between the main parties over how things should work.
In the final report of the Grain Handling and Transportation Review, Justice Willard Estey attempted to underscore the importance of dealing seriously with the problems at hand. He wrote, "Canada alone must face the grim reality that remaining competitive in the world grain market depends almost entirely upon reducing and holding to a minimum the cost of transporting grain to tidewater or to rail export point... Failure to meet this challenge will spell the end of Canadian grain marketing as we know it today."
Ironically, it is primarily the policies of the federal government that are standing in the way of meeting this challenge. No other commodity is as highly regulated as grain, and no other commodity has struggled as much to overcome inefficiencies, poor performance and lack of accountability. Because normal business practices have been outlawed in the grain industry, the normal business processes which result in higher performance, better service and optimum pricing don't work. Instead of operating on the basis of time-tested business principles, industry players are reduced to appealing to one another for cooperation in order to make changes.
Whether or not Tellier's proposal can work under the current regulatory
environment remains to be seen. Nonetheless, it should not be dismissed
lightly. Last year CN tested the concept using a hundred-car train which
was loaded at high-throughput elevators on the prairies and unloaded in
Vancouver. By the time the train got back to the prairies, the process
had taken seven days. If on a regular basis the industry could achieve
performance of 11 days instead of the usual 21 days, 2,700 cars could
be taken out of the fleet, inventory and storage costs would drop, and
more grain could be moved at times of peak demand. The premiums earned
and savings realized would benefit everyone.
web posted April 16, 2001
The Agricultural Industrial Complex
By Kevin Avram
My friend Rick owns a spray plane. He and his wife farm quite a bit of ground, and they keep a fair size cattle herd. But of all the things he does for a living his favorite is flying.
He says a person's perspective changes when you can see the big picture. I forget the actual land location of his home farm, but he can often be heard saying that things look different from five thousand feet up than they do when you're standing on the southeast quarter of section 22, township whatever and range such and such.
Looking at the big picture is something that a growing chorus of voices from the farm community and political arena would find productive. I'm referring to the folks who believe that the only financial option available to prairie grain farmers at this time is yet another federal subsidy. If they take a step back and look at the big picture, they'll find that one of the most obvious solutions to the cash crunch has been overlooked.
A major characteristic of the prairie grain industry is something that could rightly be called the Agricultural Industrial Complex (AIC). It's the Canadian version of the Military Industrial Complex that exists in the United States. The Agricultural Industrial Complex is a conglomeration of unions, government, and private companies that negotiate service contracts with government. It includes the Wheat Board, grain handlers, terminal workers, and numerous unions or services providers. These are the people who collect hundreds of millions of dollars from farmers, yet never have to look a farmer in the eye or haggle with him over a price.
Unlike the bulk fuel dealer, fertilizer dealer, or chemical salesman, who are directly affected by low grain prices, much of the Agricultural Industrial Complex is above being influenced by low grain prices. They don't care about the price because it doesn't affect them.
Consider the fact that in a geographic region that is four townships wide and four townships high, 24 miles by 24 miles, there are 576 sections of farmland. That's the equivalent of 368,000 acres. Assuming that 70% of that farmland is cropped and that there is an average yield of 25 bushels per acre, a harvest of 6,450,000 bushels will be realized.
The total freight, handling, storage, and services charges associated with getting one bushel of grain to port position, and subsequently loaded onto a seagoing vessel varies. In a recent issue of Grain Matters, the Canadian Wheat Board pegged the price at $2.28 for a bushel of wheat that was moving east from Regina and $1.70 if it's heading west.
If you figure that there are 6,450,000 bushels grown in an area that is 24 miles by 24 miles, and that the farmers in that region are moving 6.45 million bushels at $1.70 per bushel, it means that the people who work in the Agricultural Industrial Complex collect nearly $11 million. Over a ten-year period that's more than $100 million -- out of one little wee area of the prairies that's 24 miles by 24 miles! And the kicker is that most of the union workers and bureaucrats who partake of that $100 million are never in a situation where their customer (the farmer) directly evaluates whether he's getting good value for his money. If farmers were supplied with farm machinery, fertilizer, and herbicides under such conditions imagine what would happen to the price!
Prairie farmers can complain about European and US subsidies, and rightly
so, but the reality is that like a car or pickup that accidentally has
its headlights left on overnight and ends up with a drained battery, so
it is that Canada's largely non-competitive Agricultural Industrial Complex
is draining farmers' livelihoods.
web posted April 2, 2001
CWB offset program
By Craig Docksteader
For a number of months now, an idea has been bubbling just below the surface in Alberta. It's being dubbed the "Offset Program".
The concept comes from a program that the Alberta government implemented in the early 1980's. At that time, the Western Grain Transportation Act had just been implemented, putting in place a $720 million annual subsidy on the transportation of grain and grain products to export ports.
Often referred to as the Crow Benefit, the subsidy was deemed necessary because the existing statutory freight rates for grain movement were only covering about 17 to 18 percent of the railways' cost to move the grain. As a result, railways were not maintaining prairie branch lines and had reduced their investment in rolling stock and infrastructure.
But while addressing one problem, the Crow Benefit Subsidy created another. Although it ensured better rates of return for railways, and continued low freight rates for grain growers, it artificially raised the price of feed grains on the prairies.
To address this new problem, the Alberta government implemented a subsidy of its own which became known as the Crow Benefit Offset Subsidy. Alberta livestock producers were paid a subsidy equivalent to the difference in feed grain prices caused by the Crow Benefit Subsidy.
To this day, many Albertans point to the Offset Program as a key factor which has contributed to today's booming livestock industry in Alberta. By eliminating the negative impacts of a federal policy, the Alberta government facilitated continued diversification in agriculture and significant growth in Alberta's livestock industry.
With this experience in mind, there is a growing interest in seeing a new Offset Program established, called the Canadian Wheat Board Offset Program. Much like the Crow Benefit Offset Subsidy of the 1980's, this program would attempt to eliminate the negative impact of the CWB monopoly on Alberta grain growers.
Currently, if a grain grower wishes to process or export his own wheat or barley, the producer must first do a "buy-back" from the CWB. This buy-back cost is determined by the CWB, and calculated on the difference between the Board's expected pool return, and that day's open market price. Along with additional administrative fees and freight charges, the grower obtains the right to market his own grain only by paying the fees prescribed by the CWB. Obviously, this creates a significant barrier for producers who wish to market or process their own grain.
To offset the impact of this federal policy, consideration is being given to a plan that would see the provincial government reimburse producers for their costs of doing a "buy-back". This would effectively give growers access to no-cost CWB export licenses, enabling them to market their own grain without penalty.
The value of such a program would be significant. By giving producers relief from the constricting effects of the CWB's monopoly, it would allow farmer-initiated niche-marketing and value-added processing to be freely pursued. The CWB policy which successfully blocked efforts of the Prairie Pasta Producers to establish a farmer-owned pasta plant would effectively be eliminated. And even those who endorse the monopoly would not be able to criticize the program because it would have no impact on the CWB's pool accounts.
It's an idea that's worth serious consideration.
Craig Docksteader is Coordinator with the Prairie Centre/Centre for
Prairie Agriculture, Inc.
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