From the headlines, it can feel like Canada’s grain transportation woes have suddenly got worse. In fact, they’ve been looming for decades, or even longer.
Nor have its inadequacies come as any surprise to people in the know. For instance, in their paper “Grain Transportation in Canada — Deregulation,” transportation experts Joseph Monteiro and Gerald Robertson with Industry Canada, write: “The problem began before the turn of the 19th century and it has continued even into the first part of the 21st century.”
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In their 1999 study of the Canadian grain-handling system for the Organization for Western Economic Cooperation, noted agricultural economists Graham Parsons and William Wilson said the system is “widely recognized as inefficient, with many bottlenecks and system constraints including multiple origins and destinations, car allocation, limited use of most efficient elevators and unit trains, grade mix-ups, excess tough and damp storage, impurities in grain, high demurrage.”
But despite a trail of such reports, there have been no fixes. In a presentation addressing “The Transportation Mess,” Paul Earl, ag economist at the University of Manitoba stated: “History is littered with dead studies of grain logistics (seven major studies between 1950 and 1994; we are now on No. 10). Something is not working.”
Successive governments have lurched from one crisis to the next in the grain industry, hoping minor regulatory adjustments would fix a system that most observers feel is actually broken.
One reason why attempts to improve grain handling and transportation have failed is that most of the studies only examine a sector of the system rather than the entire supply chain. The focus has mostly been on rail instead of the entire grain handling system. Short-sighted, ideological changes are introduced with little to no regard for the impact that those changes will have further up or down the supply chain. There is simply no long-term vision for the future of the grain industry in Canada.
We must look outside the box for a long-term solution. The problem is that very few farmers, and likely even fewer politicians know what the box is. There is a general lack of understanding of the grain industry outside the farm gates and how our system compares with our competitors.
How we compare
In any industry, it is important for participants to understand the entire value chain and to identify any bottlenecks. Equally important is to know how your business compares to competitors within the industry.
In the Canadian grain system, we cannot do this. There are no recent studies which compare the Canadian grain-handling system to the systems of our major competitors.
Instead, what I found after weeks of interviews and research into grain production, transportation and handling in major exporting nations around the world is that Canada is an important, but relatively minor competitor in the global grains industry today.
Our reputation is struggling. In part, our importance is ebbing due to the expansion of commercial agriculture in developing and Third World countries where climate and lower cost production favour primary food production. In part too it’s because government and industry support of the agricultural sector has declined more in Canada than most other nations.
- From the Manitoba Co-operator: CP, grain handlers plan for face time
Most troubling, however, is the hit that Canada’s reputation is taking because of our aging and limited capacity infrastructure combined with unreliable service.
If we want to maintain our market share of global grain trade, we must fix the system. To do that, however, we need to understand the constraints in our system and know how our system compares to our global competitors. We have to find a way to overcome the bottlenecks.
So here is a quick comparison of our system with that of the U.S., Brazil, and Australia.
Between 2008 and 2012, Canadian farmers produced an average of just over 50 million tonnes a year of wheat, coarse grains, and oilseeds. This compares to a 31-mmt average annual production of these same crops in Australia, 128 mmt in Brazil, and 464 mmt in the U.S.
Because of our relatively small population, however, we export a large percentage of that production. In an average year, Canadian farmers export 70 per cent of their wheat, 55 per cent of their oilseeds, and 30 per cent of their coarse grains.
Other big producers are big exporters too, although not at those levels. For comparison, Australia exports 66 per cent of its wheat crop and 50 per cent of coarse grains, Brazil exports 46 per cent of the oilseeds it grows and 15 per cent of the coarse grains, and the U.S. exports 50 per cent of its wheat crop, 44 per cent of the oilseeds, and 15 per cent of the coarse grains grown.
This brings to light two very important points. First is that Canada, the U.S., Australia, and Brazil (along with many other countries) are competing to sell similar commodities to the same importing countries.
Second is that, while many farmers believe marketing our grains to the U.S. is the answer, the U.S. is a much larger producer of grains than Canada is and, in tonnage terms, it is also a much larger exporter than Canada.
Unfortunately, the primary end-use consumers for Canadian grain exports are found either in the Far East or Middle East. We need an efficient sales and logistics system to compete with other grain-exporting nations in these markets.
From farm gate to port
All four of these exporting nations rely primarily on bulk ocean shipping to move grain from port to the importing country. However, there are real differences in how the grain reaches the port.
Canadian farmers move nearly all of harvested grain by truck to on-farm storage, and then by truck to inland commercial storage, from which it is moved by rail to port terminals.
In the U.S., only about 50 per cent of the harvest goes into on-farm storage. The other 50 per cent moves directly from field to commercial storage by truck. Grain then is moved by rail, river barge, and truck to terminal ports.
Australian farmers are now increasing farm storage, but nearly all of their grain still moves by truck either directly to port at harvest or by truck to a local collection facility which then either trucks or rails the grain to port.
Brazil relies primarily on trucking to move the entire harvest destined for export to port position with next to no on-farm storage. It is important to note Brazil is investing heavily in both rail and increased storage capacity.
Commercial storage
Closer analysis of the four systems highlights a major pressure point in the Canadian system. The combined commercial elevator capacity in Canada (including port and inland) can store barely 20 per cent of our average annual production.
The U.S., by contrast, can store over 50 per cent of the crop in commercial storage, Brazil has 114 per cent storage capacity, and Australia has storage for 175 per cent of an average crop.
Instead of a system where most of the grain is in port and available for export at all times, as it is in Australia or Brazil, or even in the U.S. where half of the harvest is in commercial storage, Canada relies on just-in-time delivery from farm to port to meet export demand.
This system works only if buyers and sellers know exactly what is in on-farm bins, and if there is a co-ordinated effort to move the exact grain and grade from farm to port only when needed. Unfortunately, this pull system is exactly opposite of the push system that many farmers desire.
Canadian farmers want a system where they are able to deliver their grain whenever they want, yet in fact the commercial Canadian grain storage system can handle only a little more than 10 per cent of an average crop at any given time.
In other words, it is physically impossible in Canada for all farmers to move all their grain at harvest or in the fall period even if there was the customer demand for the multitude of grains and grades grown in any given year.
Transportation system
Even if Canadian farmers decided to deliver only to match sales, we would still be left to face the restrictions of our transportation system.
Prairie farmers cannot deliver to port other than by rail. Our limited port facilities are not designed for receiving grain by truck. So we rely on a duopoly of two private, non-competing rail lines to move all of the grain destined for export.
There really are no viable alternatives, which means in turn that there are no competitive forces to control freight costs. As a result, a revenue cap was imposed to protect farmers from excessive rail freight rates.
The U.S. by contrast has four major rail lines, so there is more competitive pricing for rail movement of grain. More importantly, there are three major river systems bisecting the major grain-growing regions in the U.S., and the publicly supported river system also controls freight costs. Furthermore, U.S. port terminals are able to handle truck traffic.
As a result, even though the distances from farm to salt water are roughly similar, the U.S. system is much more efficient and cost effective than the Canadian system.
Brazil also must move grain over long distances, but freight costs are minimized by the competition between truckers. This is not to say there are not problems. Harvest-time truck lineups at port facilities have occasionally been reported up to 80 kms long. Still, Brazil manages to move almost three times as much by truck in eight months compared to what Canadian rail moves in a year.
Australia, with a much shorter haul than any of the other three nations, is in the best position, with both truck and rail capacity for moving grain from farm to port as well as having storage capacity for almost two years of harvests.
Investment
One of the most troubling comparisons may be the lack of investment going into the Canadian grain system. We are not seeing the investment in Canada that is happening in other grain-exporting countries.
For example, while CN and CP have invested roughly $2 billion a year in track upgrades, expansion, and maintenance, U.S. railroads companies invest $7 billion a year, and in Brazil, the government has pledged $30 billion over the next six years for building more storage capacity to handle the ever-increasing production in this country.
This quick comparison identifies a host of bottlenecks in the Canadian grain system other than simply a rail problem. An apt analogy of the existing Canadian system and the government’s attempt to address the problem might be a farmer who runs a class 10 combine but only has one three-ton truck hauling the grain a long distance on washed-out dirt roads to a six-inch auger filling a 1,350-bushel bin, and then blaming the lack of harvest efficiency entirely on having one truck.
Legislating more rail cars will move more grain but only until other bottlenecks in our constricted grain-handling system override this quick fix.
As farmers, we need to ask why our system has so many constraints compared to our competitors. We need to look at the Canadian grain export system in its entirety and address all the bottlenecks if we are to successfully compete in the world grain game. We need to ask not only what the government can do, but what we as farmers need to do and what we expect industry to do. It has to be a collaborative effort between all players.
Fortunately, Canada monitors our grain system better than most countries through Quorum Corporation. While Quorum’s mandate is to monitor the transportation of grain, its reports do provide a look at the entire system. I believe that every farmer should review Quorum’s annual report to get a better understanding of our system. These reports can be found at www.quorumcorp.net/.
