Major intrusions came with the implementation of the Crow’s Nest Pass Agreement in 1897 when Ottawa gave Canadian Pacific Railway (CP) a subsidy of C$3.3 million and permission to build a rail line into British Columbia’s rich mining territory. In return, CP agreed – in perpetuity – to reduce rates on grain and flour traveling to Eastern Canada and settler’s effects traveling West.
The reduction in rates was suspended during the war, but reinstated on grain and flour in 1925 and then only on unprocessed grain in 1927.
As might be expected, railway transportation costs, including fuel and labor, gradually increased and Canadian railways, including then government-owned Canadian National, eventually reached a point where they were losing money moving wheat and the Western Grain Transportation Act was brought into effect in 1984 that gave the railways the ability to gradually raise transportation rates.
In retrospect, the so-called “Holy Crow” helped Europeans in settling the Canadian West, building communities, establishing a coast-to-coast railway and growing crops. In fact, during this era railway cars were frequently used as traveling classrooms for immigrants wanting to learn about growing wheat and livestock in a Prairie environment.
However, the money-losing transportation rates for grain led to a long period in which railways were reluctant to upgrade lines servicing the grain industry or purchase equipment used for moving grain.
During that period, Western Canada’s grain industry suffered from the lack of initiatives by the railways to build badly needed infrastructure to move grain, such as longer sidings at grain elevators.
The other intervention in Western Canada’s wheat growing industry was the establishment of the Canadian Wheat Board (CWB).
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CWB era
Even more influential than the Holy Crow, the CWB, established in 1935, controlled the lives of farmers in Western Canada that chose to grow wheat or barley (or at one time oats) as a source of income.
Paternalistic in nature, the board took complete control of farmers’ wheat and barley once it was unloaded into a licensed grain elevator. As a consequence, unless a farmer used a “producer car,” he or she was not involved in the marketing, sale or transport of their wheat.
Without a license from the board, wheat or barley could not be sold to foreign buyers, including Americans.
For the most part, wheat and barley farmers did not know their customers worldwide or follow market trends and the board’s wheat sales were kept largely confidential. Farmer’s were paid an average price through a pooling system.
Meanwhile, other Canadian crops that were sold on the open market – oilseeds such as canola and pulses such as lentils – were gaining new markets, making changes and opening new marketing opportunities worldwide. Pulses and oilseeds were often referred to as “cash crops,” meaning they were non-board crops that a farmer would be paid for quickly by the buyer while payments from the CWB took months.
But, most of all, in a world where multilateral and bilateral agreements where being entered into between nations, the Canadian wheat and barley monopoly stood out like a sore thumb, as did the Australian monopoly, the Australian Wheat Board, that was sold in 1999 to Agrium, and in 2011 to Cargill Australia.
In particular, the U.S. grain industry did not trust the CWB and took the board to court frequently at the expense of Canadian farmers, claiming it manipulated prices but consistently lost in court. Other countries were also reluctant to enter into a trade agreement with a country with one of the world’s largest monopolies.
Needless to say, while the way in which Canada marketed wheat grown in Western Canada was important to the government of the day, a major free trade agreement pending with Europe, for example, was more important to the economy of the country.
As it turned out, privatizing the CWB was a raucous event. Supporters of the board launched demonstrations and class-action lawsuits against the Harper government and, to this day, claim Ottawa still owes them millions in farmers’ money that was invested in the board.
However, the board’s monopoly powers were finally removed on Aug. 1, 2012, and a new era of “marketing freedom” for roughly 1,300 farmers that were CWB “Permit Book Holders” on the Prairies quickly changed.
This was followed, in April 2015, by an announcement that a new grain company, Global Grain Group (G3), a joint venture of Bunge Limited, and the Saudi Agricultural and Livestock Investment Company, had purchased the remnants of the board for C$250 million and the CWB name had been changed to G3.
It was a sea change for Western Canadian grain farmers and, finally, Ottawa had – for the most part – extricated itself from the grain business and a new grain handling company, G3, had been born with plans to build a network of high speed grain terminals across Canada and a new, high speed, export terminal at Port Metro Vancouver.
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Ottawa reinserts itself
Ottawa reinserted itself into Western Canada’s wheat industry in the winter of 2013-14 when there was a particularly harsh winter and a grain crop that was 40% bigger than the previous year’s crop waiting to be moved to export.
Even though the railways explained that shorter grain trains were necessary in Arctic temperatures due to a lack of air pressure in brake systems and grain movement was being impacted, Ottawa passed an Order in Council imposing fines of up to C$100,000 per day if they were unable to move 1 million tonnes of crop per week to port. As well, it increased railway interswitching limits in Alberta, Saskatchewan and Manitoba to increase competition from other railways interested in moving grain.
Both railways complained bitterly and publicly about the penalties and changes to interswitching limits.
If that review makes financial penalties a permanent part of the industry, Canadian farmers could once again find themselves embroiled in a grain handling and transportation network encumbered with penalties and government interference rather than financial incentives and collaboration.
During the winter of 2013-14, there were reports that some grain terminals had, in fact, over-ordered grain cars to ensure they received enough cars to move grain. If true, grain shippers themselves were part of the problem that led to penalties being imposed on the railways.
At the time neither CN Rail nor CP Rail chose to impose similar penalties on elevators that ordered excess cars, but there’s no saying they may not in the future.
Should this scenario unfold, it’s clear who would pay the costs of the penalties and legal fees involved – Western Canada’s grain producers.
As Mark Hallman, director of communications and public affairs for CN Rail, said in a note to World Grain:
“CN is disappointed that the federal government has decided to postpone for one year the repeal of unnecessary provisions of the Canada Transportation Act that were enacted in 2014 by Bill C-30. The provisions were never justified and should sunset this August, as recommended by the report on the review of the Canada Transportation Act led by David Emerson and which Minister Garneau tabled on Feb. 25, 2016. CN hopes the government will see the wisdom of extinguishing the unnecessary provisions, including minimum grain volume mandates and extended interswitching, at the end of the one-year extension. If not rescinded, extended interswitching will discourage railway investment in branch line networks.
“CN believes it was wrong to impose Bill C-30 on railways in the context of an outsized 2013-14 grain crop and extreme winter conditions totally beyond the railways’ control. Once the cold weather of the period abated, CN, as it promised Ottawa, bounced back, posting a record performance that continues to this day. CN transported record volumes of Western Canadian grain in the 2014-15 crop year – over 5% greater than during the record 100-year crop year of 2013-14. CN is proud of its grain-hauling achievement, and the nation’s grain supply chain remains fully in sync in all corridors.
“True supply chain collaboration and a reliance on commercial incentives are essential to efficient grain supply chains in Canada. Burdensome regulations will stifle innovation and discourage investments necessary to support Canada’s rail infrastructure.”
It will be interesting to see whether grain farmers will choose to listen to Canada’s two world-class railroads and keep moving toward true economic freedom and open borders between Canada and the U.S.
