Canada farmers complain railway profits excessive
Published: March 25, 2008
Source: Reuters
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WINNIPEG, Manitoba, March 25 (Reuters) - Canada's government should investigate what it costs rail carriers to ship grain, farm groups said on Tuesday, releasing a study which implied railways are reaping unreasonable profits.

Canadian National Railway and Canadian Pacific Railway get a 50 percent return on their variable costs, according to estimates by rail analyst John Edsforth.

That's more than double what they were allowed to earn before rail laws were overhauled in 2000, and twice what they would earn if there was more competition, Edsforth said in a study commissioned by the Canadian Wheat Board.

A coalition of farm organizations said in a statement the carriers make at least C$100 million ($98 million) per year in "unreasonably excessive returns."

"We're not against the railways making a profit," said Bob Friesen, president of the Canadian Federation of Agriculture. "But one's profit should not come at the other's very large expense."

Canada's transportation regulator caps rail revenue from grain shipments, but does not prescribe maximum rates.

The farm groups said the revenue caps are based on railway costs from a 1992 review.

But the grain transportation system has since changed dramatically, the groups said. There are only 370 elevators across the Canadian Prairies, down from 1,500 in 1992, and most grain is shipped in efficient units of at least 50 rail cars.

The farm groups said freight rates have increased in recent years while service levels have declined.

Rail service and rates have always been a thorn in the side of landlocked Canadian farmers, who on average rail their grain 1,500 kilometers (940 miles) to port.

That's more than twice the distance that competitors in Kansas or Russia face, the farm groups said on Tuesday.

The Canadian Transportation Agency recently ruled CN's service to small shippers and the Canadian Wheat Board was inadequate last year. The regulator is reviewing data for the current year for an ongoing complaint against the railway.

The federal government will review railway service as part of new legislation that passed earlier this year, but the farm groups said they also want a full review of rail costs.

In January, the transportation regulator reduced the rail revenue cap by about C$72 million. The railways are appealing.

Canadian National Railway, the country's largest rail line, complained this month that it was being hurt financially by the "creeping re-regulation" of its grain transportation business.

CN said Canada's hauling rates were already among the lowest in the world and "significantly less" than in the United States. It accused the government of using the rate system to transfer income from the carriers to the farmers.

CN generated C$1.3 billion in revenue from hauling grain and fertilizers in Canada and the United States in 2007.

Canadian Pacific Railway said its grain revenue was nearly C$940 million last year.

($1=$1.02 Canadian) (Reporting by Roberta Rampton and Allan Dowd; Editing by Bernadette Baum) Reuters