May 8 (Bloomberg) -- Canadian farmers holding record grain inventories need a stronger law to compel shippers to move food commodities and a referee to coordinate the system, Manitoba Premier Greg Selinger said.
The Canadian government’s law that sets minimum grain volume requirements for Canada’s two railways could be toughened, Selinger said in an interview yesterday at Bloomberg headquarters in New York.
“I think they can strengthen it,” Selinger said of the legislation. “There needs to be some sort of rules that ensure that producers can get their product off the land in western Canada. This is a historic issue.”
Agriculture Minister Gerry Ritz introduced the law in Canada’s Parliament in March. It would require railways to ship a minimum of 500,000 metric tons of grain each week to clear a backlog that’s left as much as C$20 billion ($18 billion) of crops stuck on prairie farms. The bill was passed by the House of Commons this week and is now before the Senate.
“You need the right mix of oversight and planning while allowing the private sector to meet its efficiency objectives,” Selinger said. Grain companies, which pay fines for not getting the harvest onto boats, argue there must be more rail penalties for not getting shipments to port on time, he said.
Statistics Canada reported this week that farmers in all three prairie provinces held record stocks of canola on their farms, with wheat stocks rising 73 percent from a year earlier.
One of the harshest winters on record and historically large crops led to the backlog of grain, a situation compounded by increased shipments of crude oil by rail.
“When you have a bumper crop and you can’t get it off the land, that really kills the cash flow for farmers quite frankly, and it also has an impact on the price and the quality of the product,” Selinger said.
Another factor has been the end of the Canadian Wheat Board’s grain-export monopoly, as the agency no longer has the same ability to coordinate grain shipments, he said.
“The Wheat Board’s demise took away some of the coordination mechanisms for moving grains,” Selinger said. “They used to acquire a lot of cars.” Farmers “recognize the change,” he said.
Ritz doesn’t see it that way.
“The overwhelming majority of farmers agree that there is no link between the current logistical challenges and the removal of the old single-desk,” Ritz said in an e-mailed statement, referring to the Wheat Board. “Our Government has taken concrete action to ensure grain and all commodities get to market in a timely manner.”
Selinger said the government could improve the law by establishing an arbitrator to oversee the logistics of the rail transportation system, which is dominated in Canada by Montreal-based Canadian National Railway Co. and Calgary’s Canadian Pacific Railway Ltd.
“There needs to be a referee in the transportation system,” Selinger said. “There are only really two railways in Canada; it’s not exactly fierce competition.”
Canadian Pacific chief executive officer Hunter Harrison said in a statement today that while the railroad “is moving grain in all available lanes,” the government should recognize that “this is a capacity problem and the Canadian supply chain needs to be searching for a capacity solution. Rail is only one element of the supply chain.”
“We need constructive dialogue instead of the ongoing back and forth that is happening in the media,” Harrison said.
Canadian National will be able to meet the grain-moving target in the legislation, Chief Operating Officer Jim Vena said at a Bank of America Merrill Lynch conference in Boston May 7. “It’s something that our railroad is sized to be able to do without an issue. We’ve got the locomotives, we’ve got the people to do that, and we’ve got the rail cars.”
Vena criticized the government’s approach of regulating the railways alone. He said they can’t control the weather, pointing out that the port at Thunder Bay, Ontario, where most of Manitoba’s grain goes, was late to open this year because of ice.
“We do not think the regulation is positive to the rail industry in Canada,” Vena said. “In fact, it doesn’t help.”
Selinger also cited the late start at Thunder Bay.
“We have to make sure Manitoba can move its grain, not just through Thunder Bay, not just west which is where everything is flowing right now, but also down into the United States,” he said. “You need some agency that can manage the whole thing.”
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