Inspecting grain.
The main task of the grain handling and transportation system (GHTS) is to get grain from field to final market destination. The main physical functions of this system are transportation, handling, storage, and processing (cleaning). On the prairies the main transportation infrastructures are roads and rail lines; in Saskatchewan, primary elevators are the main storage, handling and cleaning infrastructure. Changes in technology have greatly affected the nature of the GHTS. The development of the network of rail lines, which took place in the settlement period, was not a planned system but one that developed through competition between rival railway companies: the first was the Canadian Pacific Railway (CPR), which was completed in Saskatchewan in 1884; others were the Canadian Northern Railway and the Grand Trunk Pacific Railway. When these companies faced bankruptcy, they were taken over by the federal government and amalgamated into the Canadian National Railway (CNR), which also incorporated the Intercolonial, the Grand Trunk, and the National Transcontinental Railways. This meant there were only two railways competing for grain business.
When the prairies were first settled, the main means of grain movement from farm to elevator was by horse and wagon. Most farms, then as today, had to provide sufficient farm grain storage for almost their entire production, because they could not rely on the elevator system to be able to take their grain directly from the field. Storage space at grain elevators was used primarily to allow for loading several rail grain cars. Few primary grain elevators in the country were equipped to clean grain for export: this was carried out at port terminals. Most elevators, however, had small cleaners used to clean farmers' grain for seeding. There were over 100 grain companies that built elevators during the early years of settlement; however, most of these companies were small. Many of the main line companies were initially owned by American interests (e.g., National, Federal, McCabe, Searle); the large Canadian companies were N.M. Paterson and Sons, Pioneer (Richardson and Sons), and Parrish and Heimbecker. While none of the American-owned companies exists today, all three Canadian companies are still in business.
The spacing of grain delivery points along the rail lines was to allow a farmer located furthest from the rail line to be able to deliver a load of grain by horse and wagon and return home in one day. The number of rail branch lines and elevators was suitable to 1900 technology; but sixty years later, with better roads and large trucks capable of hauling up to about 1,500 bushels of grain, as well as better railway power equipment and grain steel hopper cars instead of wooden boxcars, the rail and elevator system was overbuilt. What followed from the 1980s was the abandonment of rail branch lines and the replacement of decaying wooden elevators with larger inland cement terminals.
How the grain elevators and railways charged for their transportation, handling, cleaning and storage services became a key policy issue for farmers and hence for government, and it remains so today. The choice for government was (and is) to allow the free market to determine freight rates and elevator charges. In 1897 the federal government enacted the Crow's Nest Pass Agreement, which set a maximum rail freight rate for moving grain from delivery point to the lakehead ports of Fort William and Port Arthur (today Thunder Bay). This rate structure was later applied as well to West Coast movement of grains; but by the 1950s the railways claimed to be incurring losses. As the rate structure was distance-related, it was not possible for the railways to apply variable rates in order to provide an incentive for grain companies to carry out multiple car loadings which would increase the efficiency in grain rail movement. What ensued was a deterioration in the rail line system and especially the fleet of rail cars required to move grain, as the railways refused to invest capital unless they were allowed to charge higher rates for moving grain, or unless the federal government compensated them for their losses.
The federal government initiated a series of commissions to investigate the situation and recommend solutions. These included: the MacPherson Royal Commission in the 1960s; the Hall Commission on Grain Handling and Transportation in 1975-77; the Snavely Commission on railway costing in 1975-77; and the Prairie Rail Action Committee, which was appointed to recommend on the undesignated rail lines from the Hall Commission. The Gilson Report on Western Grain Transportation came out in 1982; this led in 1983 to Bill C-155 and then to the Western Grain Transportation Act (WGTA), which came into effect on August 1, 1984. In 1985 there followed the G.C. Hall Report on the Committee of Inquiry on Crow Benefit Payment.
A political battle took place over maintaining the Crow Rate structure. Some farm groups (e.g., National Farmers Union) as well as some farmer-owned grain companies (e.g., Saskatchewan Wheat Pool) argued that the Crow rate was historic and was signed to remain in perpetuity. Other farm groups and grain companies supported a change in the freight rate structure, as they foresaw that the federal government would not provide the funding necessary to modernize the GHTS without allowing at least some increase in rail freight rates. It was the latter view that prevailed, and the WGTA was passed to replace the Crow Rate structure. The WGTA contained provisions to allow for the application of a lower freight rate than what was allowed under a strictly distance basis. The CNR, Cargill Grain, and Northern Sales applied for selected lower rates for the 1985-86 crop year. Following public hearings the application was disallowed, as CNR refused to disclose confidential information that was needed to substantiate the cost-efficiency gains claimed by the applicants.
Whereas under the WGTA rail freight rates were raised, the federal government took on the responsibility for sharing the increased cost of moving grain. The federal share was known as the Crow Benefit; it was initially set at $659 million, but the WGTA contained the provision that further rail cost increases would be shared jointly by the federal government and farmers. In 1992 the subsidy was worth approximately $720 million. It was clear politically that the federal government was looking for an excuse to get out of its obligations; the opportunity came about with passage of the General Agreement on Tariffs and Trade (GATT) in 1994, when the Liberal government claimed that the Crow Benefit was a subsidy to farmers and was not allowable under the new international trade agreement. The federal government passed Bill C-76 (Budget Implementation Act), which eliminated the WGTA and with it the Crow Benefit, placing grain transportation under the National Transportation Act; this left the farmer largely to pay for the entire freight cost.
In February 1995, the federal government introduced the Canadian Transportation Act (CTA), which redefined the regulatory framework on the prairies. The CTA replaced the Crow subsidy with regulated maximum freights (rate cap). The federal government provided a one-time compensation payment of $1.5 billion for farmers directly affected by the regulatory changes. The result of the change was that the cost to farmers of rail shipments more than doubled; the WGTA also allowed for the abandonment of rail branch lines. The general dissatisfaction with the “rate cap” system led to the federal government's Estey-Kroeger review in 1997-99, which resulted in the revision of the CTA in the form of Bill-34. The government replaced the rate cap with a revenue cap on grain shipment. This decision allowed the railways complete freedom to set rates as long as the total freight revenue is below the defined cap; it represented a complete change of philosophy toward the GHTS by the federal government and industry - from one of regulation over the freight rate structure to one of rate-setting freedom.
The allocation of rail grain cars has been another area of controversy historically. In the early settlement period farmers complained about collusion between the grain companies and the railways. These complaints led to several Royal Commissions, two of which in 1899 and 1904 led to the passage of the Manitoba Grain Act and later the Canada Grain Act, under which the Board of Grain Commission (today the Canadian Grain Commission) regulated certain aspects of the GHTS. The Manitoba Grain Act provided for the provision of a car order book that each railway agent had to keep. Previously farmers had complained that the railways discriminated against their loading their own grain cars, which many wanted to do to avoid paying the elevator companies storage and handling charges; the order book now allowed farmers to order cars on an equal footing with the grain elevator companies.
The delivery process was generally seen to be haphazard and inequitable. In 1941 the federal government introduced the mechanism of quota books, through which grain by type would be called for delivery, thus making the system more efficient and equitable. From that time to the present, numerous changes to the quota delivery system and method of calling in grain have occurred. The challenge has been to provide equitable treatment to farmers and to encourage greater efficiency. Throughout most of the period the Canadian Wheat Board (CWB) had most of the power over rail car allocation, as it was responsible for the shipment of most of the grain produced on the prairies; this led to years of complaints by shippers of non-Board grains of discrimination over rail car allocation. Under Bill C-34 the CWB was required to tender a minimum of 25% of its primary grain deliveries and logistical services by a bidding process involving the grain companies. This process has led to further commercialization of the GHTS. The allocation system now in place is known as the Advance Ordering System; it allows for freight rate discounts for shippers who can commit to certain volumes or rail shipment in advance. There are also incentives for large unit trains: in 2002-03 over 60% of prairie grain was moved in unit trains of more than fifty cars.
The rail line network peaked in Saskatchewan at approximately 16,679 km; approximately 4,000 km have been abandoned. In 1975 there were 818 delivery points with one of more primary elevators; this number had declined to 455 delivery points by 1999, and 147 in 2004. There were 2,309 primary licenced elevators in 1975, but only 197 by 2004: this represents a decrease of over 90% in about thirty years. Primary elevator capacity was 5.1 million tonnes in 1975, 3.5 million tonnes in 1999, and 2.8 million tonnes in 2004. The road network consists of 26,100 km maintained by Highways and Transportation, and 159,000 km maintained by rural municipalities.
The ratio of grain handling to elevator capacity, which is a measure of the efficiency of the elevator/rail system, has improved from two to over five over the last twenty-five years. While the efficiency of this component of the system has improved, with fewer rail lines and fewer delivery points the transportation costs have shifted from railways and elevators to roads and trucks: it is therefore clear not clear whether the new system is overall less costly. The cheapest way to move grain over land is by rail, not truck; but roads have alternative uses whereas most branch lines on the prairies only served to move grain. Whether a GHTS under regulation versus one governed by market forces leads to greater efficiency and thus lower costs is also not clear: only time and effective cost studies of the evolving GHTS will tell.
Gary Storey