OPINION
THE WESTERN PRODUCER | WWW.PRODUCER.COM | JUNE 7, 2012
11
& OPEN FORUM GRAIN TRANSPORTATION | RAILWAYS
POTASH | BHP BILLITON
Rail regulation acts as drag on sector
Possible mine delay unsettling
BY MARY-JANE BENNETT
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he cost of railway infrastructure projects and network acquisition is staggering, yet Canada’s railways weigh these concerns on a regular basis. Rail’s air, trucking and marine competitors have an advantage from the outset in not having to build or maintain infrastructure. Yet rail is resilient. Despite its capital-heavy requirements, rail can withstand under-investment for years. Eventually, however, a lack of capital catches up. It is reflected in lagging capacity and productivity. One significant reason behind railway under-performance is regulation and the reluctance of capital to invest in unnecessarily regulated industries. The Conference Board of Canada has traced the relationship between regulation, investment and productivity in railways. It found that regulation results in deferred investment decisions and negatively affected productivity, while deregulation has the opposite effect: attracting capital and increasing productivity. Thus, capital investment in Canadian railways suffered during the highly regulated years of the Western Grain Transportation Act (1983-96). By contrast, the 1996 Canada Transportation Act created a regulatory climate that encouraged new investment and doubled capital expenditures over a two-year period. The history of Canada’s rail is the history of rate regulation. At different points in their history, over-regulation has brought Canadian and U.S. railways to the brink of ruin. Howev-
The history of Canada’s rail is the history of regulation. The revenue cap is the most recent example. | FILE PHOTO er, the two countries have dealt with the crisis differently. The U.S. Congress deregulated the rail industry in one fell swoop with the 1980 Staggers Rail Act. In Canada, the federal government committed in the 1980s to deal with the 1897 Crow’s Nest grain rates in light of urgent commission findings that tied the rate to a financial crisis with Canada’s railways. However, Ottawa ultimately refused to deregulate, which transportation deputy minister Arthur Kroeger blamed on the Liberals’ quest for western votes in the grain-rich Prairies. Not only did the Crow’s Nest rate affect the railways and the Canadian economy, it also stalled grain indus-
try advances. The WGTA continued the preferential treatment of grain transportation. The act allowed the railways to earn money for three years with productivity gains clawed back in year four, which was hardly enough to encourage capital investment. It also resulted in excessive transportation of grain, lowering grain prices in eastern Ma n i t o b a a n d Sa s k at c h e w a n , encouraging export grain production and discouraging value-added processing and crop diversification. The WGTA was replaced in 1996 with a maximum rate scale on grain transportation. In his 1998 report, justice Willard Estey found the rate scale to be mileage oriented and
insensitive to the true cost of transportation, discriminating against shipment to the port of Prince Rupert. Despite the Estey recommendation that the rate scale be repealed, former prime minister Jean Chretien’s government opted instead for a cap on rail’s grain revenue and a penalty to railway earnings in excess of an amount established annually by the Canadian Transportation Agency. The Conference Board questioned the government’s commitment to a market driven system in light of Ottawa clawing back $178 million from railway revenue at the outset of the cap regime. The board criticized the special legislation governing grain, saying regulation increased the risk for capital investment. It said regulation that favours one commodity is unique among similar industries and contradicts business discipline that emphasizes price signals and market forces. Given these impacts, it is worth considering whether the revenue cap is smart regulation. The revenue cap applies only to grain and within that commodity only to some grains, only to some railways, only to some ports and only to movements west of Thunder Bay. With elevators, ports, trucking and marine providers moving the same grain without a cap on revenue, the common sense behind the regulation is lost. Mary-Jane Bennett is a Vancouverbased consultant. She is author of Grain Freight Regulation in Canada published by the Frontier Centre for Public Policy, fcpp.org. This article has been edited for length.
GRAIN TRANSPORTATION | RAIL STRIKE
Not only railway workers lack bargaining power HURSH ON AG
KEVIN HURSH
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hose poor railway unions. As soon as they initiate strike action, the government rushes to introduce back-to-work legislation. It’s an affront to the collective bargaining process. Why would a railway negotiate in good faith knowing its employees will be quickly legislated back to work anyway? If you think the railway workers have it tough, try being a customer of the railway. But more on that in a minute. If you listen to the media accounts, it’s only this mean-spirited, antilabour Conservative government that forces unions back to work. Well, try to identify a railway strike in this country that didn’t end with the gov-
ernment taking action. Whether Conservative or Liberal, federal governments have shown little patience with railway strikes and the collateral damage to the economy. Railway strikes end with legislation. It’s just a question of how long the trains sit idle. Railways may not be an essential service, but no responsible government can put up with an extended work disruption. If the NDP ever forms government in this country, how will they deal with such situations? Will they sacrifice the nation’s economy over the unassailable right to collective bargaining? Yes, back-to-work legislation infringes on union bargaining power, but binding arbitration means the workers should be treated fairly. Amazingly, even when the government indicated its commitment to a legislated end to the work disruption, the opposition parties and the union still had to be dragged kicking and screaming through the process. Once the legislation is a foregone conclusion, collective bargaining
ends. If opposition parties want to express their disapproval, that’s fair game. But why not expedite the process? Who benefits by dragging out the inevitable? Specifically, why did Liberals in the Senate insist on calling witnesses and spending more time on a bill that had already been fast-tracked through the House of Commons? As for the union workers, why not go back to work? No meaningful bargaining takes place with the bill before legislators. Getting back on the job voluntarily ahead of the legislation would minimize the impact on the economy and win them a lot of respect. While the union received a lot of sympathy, it’s shippers who pay for increased wage and pension benefits and it’s shippers who are hurt by the work disruption. As farmers, what can we do about the 9.5 percent increase that’s coming on grain freight rates in the new crop year? Where is our bargaining power? And how much power do grain shippers have when railway service sucks? The railways have refused to enter
into meaningful rail service agreements. Clearly, the railways will negotiate such agreements only if forced to the table by government legislation. Hopefully that will come this fall. If you are a railway worker and you really believe that your wages and benefits are lagging behind other sectors, you can take a job somewhere else. Of course, most won’t leave because they do quite well as railway employees. As farmers, what do we do if we want to avoid high freight rates and/or poor rail service? The options are limited. The two main railways don’t compete in any meaningful way and other modes of transportation aren’t viable for most of the markets we serve. Despite a grain freight rate cap, efficiency gains are largely being captured by the railways rather than being passed along to customers. Railway workers deserve to be treated fairly, but so do railway customers. Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.
EDITORIAL NOTEBOOK
JOANNE PAULSON, EDITOR
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hen Marius Kloppers speaks, the effects ripple across the world. Kloppers, chief executive officer of BHP Billiton, recently told Caixin Media Co. that the company would “wait and see” on new projects for 18 months to two years, and there would be no major approvals for six months. Naturally, media outlets jumped all over this statement, in part because a BHP decision on the Jansen potash mine near LeRoy, Sask., was slated for this year. “The potential delay of a huge potash project is dampening some of the excitement around Saskatchewan’s boom,” said the Globe and Mail May 31. Work continues at the mine, delay or no delay. It’s fascinating what can be done when you have deep enough pockets. BHP has already spent $2 billion on the feasibility phase of Jansen, which would ultimately cost $12 billion to bring on stream. Considering the amount of infrastructure already in place at Jansen, not to mention a substantial BHP office presence in Saskatoon, you would think this mine was already approved. Not so, and at least one competitor does not believe it will be. Bill Doyle, president and CEO of PotashCorp, has not held back on expressing his view that the Jansen mine — deep pockets or not — will not go ahead. “We know there are no new greenfield mines coming at us (in the next five years),” he recently told The Saskatoon StarPhoenix. Doyle has previously said that the costs associated with developing a greenfield potash mine are huge and unaffordable in the present environment — even for BHP. Adding to Doyle’s credibility, the current global economic backsidekicking is indeed likely to be felt in prairie commodity sectors. That being said, it would be unfortunate if Doyle proves to be right. Delaying or stopping the Jansen development would be tragic for the rural municipality of LeRoy, which has put tonnes of work into such things as road development and permitting in anticipation of job and tax revenue creation. In addition, farmers have sold land and moved off homesteads to accommodate the miner. LeRoy reeve Jerry McGrath perhaps said it best: he doesn’t want to contemplate the mine not going ahead after all the change that has already occurred. “Anything can be replaced,” McGrath told WP reporter Karen Briere earlier this spring. “Except people.”