Grain companies pay higher freight rates than CWB: report

Another academic from the University of Saskatchewan has released a paper that suggests western Canadian farmers are paying more money than ever to get their grain to market and are receiving smaller payments in return.

Laura Larsen, a doctoral candidate specializing in the history of the prairie grain trade, said per-tonne freight costs incurred by the Canadian Wheat Board for moving prairie grain to market were consistently lower than per-tonne freight costs incurred by private grain handling companies.

Based on audited data from the Canadian Transportation Agency and the wheat board, Larsen determined that CWB freight costs between Aug. 1, 2001, and July 31, 2012 — the last 11 years of single-desk selling — ranged from $9.35 per tonne in 2004-05 up to $19.48 per tonne in 2011-12.

By comparison, freight costs charged by the private grain trade during the same 11 year period ranged from a low of $47.36 per tonne in 2011-12 to a high of $120.22 per tonne in 2001-02.

Those freight costs are inevitably passed down to the farmers who produce and sell grain.

“The CWB consistently has had a lower freight cost than the private trade and that’s in part because the private trade doesn’t have that market power to negotiate better freight rates,” Larsen said.

“They’re negotiating as individual companies versus the CWB, which got to negotiate as a single-desk, handling the entire prairie crop.”

Larsen’s study suggests that prairie farmers could have saved more than $4.5 billion in freight between 2001 and 2012 if private grain companies had been able to negotiate rail freight costs similar to those negotiated by the CWB.

“The private grain trade was constrained in what they could negotiate because they weren’t as big as the CWB and they were not handling the same volumes,” she said.

Using a model based on past trends in freight service pricing, Larsen’s study also suggests that farmers would have paid freight costs of roughly $21.50 per tonne for moving board grains in 2014-15 if the CWB’s single desk had remained intact.

By comparison, the report estimates that the best freight rate that private grain companies could have negotiated for non-board grains would have been in the neighbourhood of $71 per tonne.

“The bottom line is that the private trade doesn’t have the same market power” as the former CWB, said Larsen.

The paper, entitled An Evaluation of the Present Situation for Western Canadian Grain Farmers within a Historical Context, was commissioned by the Canadian Wheat Board Alliance, an organization that supports orderly marketing and is currently lobbying Ottawa to re-establish single-desk selling in the West.

Larsen said the CWBA paid her for time spent researching the topic and preparing the report. However, she declined to provide details about the amount of compensation received.

CWBA spokesperson Andrew Dennis described Larsen’s paper as a “historical overview of orderly marketing on the Prairies” that would allow the CWBA to compare the situation that farmers are currently facing with the historical record.

The paper appears to support previous claims by CWB supporters and by agricultural economist Richard Gray, suggesting that the elimination of single desk marketing has cost prairie grain growers as much as $6.5 billion in lost income over the past two years.

CWBA representatives said the paper’s findings would be shared with government officials in Ottawa in hopes that a Liberal government would consider reinstating a single-desk marketing system.

“Since the removal of the Canadian Wheat Board in 2011-12, prairie grain farmers have gone from getting over 90 percent of the world grain price to the present level of between 40 and 60 percent,” Dennis said.

“Dr. James Nolan, another economist from the University of Saskatchewan, has projected that as grain companies on the Prairies continue to consolidate further, that farmers’ share of the international grain price may decline to as little as 20 percent.”

Dennis said Larsen’s paper also exposes new information on the inefficiency of the private trade in dealing with railway companies.

“Using audited Canadian Transportation Agency data on railway handlings, total payments to railways and the Canadian Wheat Board audited statements, Larsen has shown that the private trade has paid over four times the freight cost per tonne and sometimes as much as six times the freight cost per tonne that the single-desk wheat board did,” Dennis said.

“These excess payments were hidden from farmers by the private trade in their basis calculations for non-board grains.”

Visit www.cwbafacts.ca/cwba-research-paper-april-2016/ to view an online version of Larsen’s paper.

Contact [email protected]