Canada to Require Railways to Increase Grain Shipments

Canada ordered the nation’s two major railways to ship a minimum of more than 1 million metric tons of grain a week during the fall harvest to prevent a recurrence of the backlog that left farmers unable to move crops last winter.

Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt said today Canadian National Railway Co. (CNR) and Canadian Pacific Railway Ltd. (CP) will each be required to move 536,250 tons of grain a week between Aug. 3 and Nov. 29 or face penalties of C$100,000 ($92,000) per violation.

“We’re still carrying a significant backlog,” Ritz said in a telephone interview from Saskatoon, Saskatchewan. “We want to make sure we continue to move that product.”

A similar order requiring railways to move 500,000 tons of grain a week was imposed in March after a backlog of as much as C$20 billion of grain was stuck on prairie farms. Canadian farmers harvested record wheat and canola crops in 2013 and supplies along with harsh weather overwhelmed the country’s rail system, making sales almost impossible.

There is no need for “burdensome and ill-advised” government regulation, CN Chief Executive Officer Claude Mongeau said in an e-mailed statement. The grain supply chain is back in sync and ready to handle the next harvest as a result of hard work and normal commercial incentives, he said in the statement.

“It’s truly unfortunate that the federal government has decided to introduce extensive regulations in reaction to a 100-year grain crop that has been handled reasonably well in the normal course of business,” Mongeau said in an e-mailed statement.

Ignores Input

The government’s move “ignores any and all input from the railroads around the impact on length of haul, the natural ebbs and flows in supply chain performance or any of the changes that CP has made to its grain distribution process,” spokeswoman Breanne Feigel said by e-mail.

The government’s latest measures mean companies will be able to know how much grain they can sell in the crop year that starts today, said Wade Sobkowich, executive director of the Winnipeg, Manitoba-based Western Grain Elevator Association, which represents handlers including Glencore Xstrata Plc’s Viterra unit and Richardson International. Grain companies had to cancel sales last year or buy out contracts after the amount of rail cars they expected were not delivered, he said.

“It’s a step in the right direction,” Sobkowich said in a telephone interview. “We will know more about rail capacity and car supply going into this crop year.”

Farmers will hopefully be able to make timely deliveries on grain contracts, Doug Chorney, president of Winnipeg-based Keystone Agricultural Producers, said in a telephone interview. Many producers had to renegotiate bank loans last winter after they were unable to deliver grain because of the backlog, he said.

“Last year, I was unable to deliver most of my contracts,” Chorney said. “I know other farmers had a similar experience.”

To contact the reporter on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Paul Badertscher, Carlos Caminada

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