University of Saskatchewan

July 29, 2014   

Deregulation Would Cost Farmers More: U of S-led Study

March 08, 1999

FOR IMMEDIATE RELEASE
Friday, Jan. 22/99

Saskatoon, SK. Deregulation of the Canadian grain handling and transportation system would end up costing farmers more than the current system, concludes a provincially commissioned study by a University of Saskatchewan-led research team.

The study was commissioned by Saskatchewan Agriculture and Food in response to the fact the federal government is considering changes to the way Canada's grain handling and transportation system is regulated.

"The results of this research indicate that if deregulation is considered, it must involve provisions for greater competition at all levels of the system, especially among the railways," says Murray Fulton, U of S professor of agricultural economics.

"Without greater competition, deregulation would cause rail rates to increase substantially which would lead to higher costs for farmers. In fact, in some situations, freight rates for canola and wheat could rise to a point where trucking to the West Coast becomes competitive in a number of regions."

These findings are consistent with what has actually happened in Montana under deregulation where Burlington Northern freight rates are twice those in Western Canada, he noted.

The study, which also involved U of S agricultural economist Richard Gray, University of Alberta agricultural economist Harvey Brooks, and former U of S graduate student Kathy Baylis, also indicates that: o Under deregulation, freight rates for wheat are predicted to increase, while local and terminal elevator charges fall. The total cost of moving grain from the local elevator to port, however, rises. This pattern of higher freight rates combined with lower elevator charges is the same pattern that has been observed in the U.S.

  • Both handling tariffs and freight rates are predicted to increase substantially for canola. Canola is a higher-valued crop than wheat, which means elevator companies and railways are able to raise their rates for this crop and still retain the volume of business.
  • The increase in freight rates is greater in regions where only one railway is operating.
  • Allowing open access to the rail network (train operators would be allowed access to the existing rail network for a set access fee) reduces freight rates and increases elevator tariffs for wheat and canola compared to what would be the case under deregulation. For both crops, the cost of moving grain from the elevator to port (the export basis) falls. However, a reasonably large number of train operators is required to produce enough competition so that the export basis falls to the current level with the freight rate cap in place.
  • Introduction of a completely deregulated environment in which the freight rate cap is removed results in a 17-per-cent drop in wheat exports (2.12 million tonnes out of a current 12.43 million tonnes) compared to the current situation where the freight rate cap is in place. The largest decrease (both in absolute and percentage terms) is in exports going to the West Coast.

"This research is particularly timely now that there's national discussion over the future of the grain handling and transportation system in Western Canada," said Gray.

An executive summary and a PDF file of the full report are available at: http://www.usask.ca/agriculture/agec/publications.htm

For more information, contact:

Murray Fulton
Director, Centre for the Study of Co-operatives
Professor, Agricultural Economics, University of Saskatchewan
Ph: (306) 966-8507    E-mail: Murray.Fulton@usask.ca

Harvey Brooks
Co-operative Chair in Agricultural Marketing and Business
Associate Professor, Department of Rural Economy
University of Alberta
Ph:(403) 492-4596    E-mail: Harvey.Brooks@ualberta.ca

Richard Gray
Director, Centre for Studies in Agriculture, Law and the Environment
Associate Professor, Agricultural Economics
University of Saskatchewan
Ph: (306) 966-4026    E-mail: grayr@duke.usask.ca

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