Give farmers excess freight revenue: WGEA, CWB

(Updated Jan. 13) — The Canadian Wheat Board and the Prairies’ major grain handlers both want to see this year’s major reversal of grain freight revenue go directly to Prairie farmers, not to crop research.

Under federal transportation rules, Canada’s two major railways must forfeit Prairie grain freight revenue over a set cap, with proceeds going to the Western Grains Research Foundation (WGRF), which uses interest income from that cash to fund crop research and development.

For the 2007-08 crop year, however, the grain revenue overage that railways CN and CPR must fork over, pending any appeal they may mount, shot up from the low millions into the tens of millions, due to a revision by the Canadian Transportation Agency (CTA) in how the rail revenue caps are calculated.

The CTA late last month ruled that the two railways combined have exceeded their grain revenue caps by $59.77 million, which, along with a 15 per cent penalty worth $8.97 million, is now payable to the WGRF.

“We understand the (WGRF) does very good work for the benefit of all farmers and we support the work done by this organization,” said Wade Sobkowich, executive director of the Western Grain Elevator Association (WGEA), in a release Monday.

However, he said, “it was never imagined that the excess amount would ever be this high.”

To that end, the WGEA, whose nine members represent over 90 per cent of Western Canada’s bulk export grain handle, called Monday on the federal government to return the nearly $60 million in overage “directly to producers” and leave the $9 million penalty to the WGRF.

The association’s demand was echoed Tuesday in a separate release by Canadian Wheat Board CEO Ian White.

“Farmers were overcharged for the rail freight of their grain by $2.23 per tonne,” White said. “For many farms, this amounts to thousands of dollars… We are asking that the federal government find a way to channel the money back to producers who paid it.”

“Unprecedented magnitude”

“In the past, the administrative cost of calculating how much each individual producer would have been owed was seen as too costly,” the WGEA said, but “the amount at stake warrants the administrative exercise be undertaken this year.”

The CWB’s White agreed that while the WGRF’s work is important, the “unprecedented magnitude” of the railways’ revenue overage demands action to return the money directly to farmers in this specific case.

“There are various options on how this money can be returned to producers, some of which are straightforward and others which are higher in administration,” the WGEA’s Sobkowich said Monday. “The point is — this is a significant amount of money and it should properly flow back to farmers.”

The WGRF on Monday didn’t have an official response to the WGEA’s demand, but last month said the foundation is well aware these are farmer dollars. The foundation, which previously has had to refund cash to the railways on appeal, plans to hold this money pending the outcome of the railways’ appeals, if any, of this year’s caps.

“We’re often asked why the excess railway funds can’t be returned to individual producers,” WGRF executive director Lanette Kuchenski said Dec. 30. “WGRF is not in a position to change (federal) legislation and I don’t believe it was ever envisioned when this legislation was passed that the excess revenue cap dollars would ever be this high.”

CN and CPR’s record-high overages come from the CTA’s adjustment in February 2008 to the volume-related composite price index (VRCPI), a figure the CTA uses in calculating the annual caps.

The CTA’s adjustment was meant to better reflect the actual costs incurred by CN and CPR for the maintenance of grain hopper cars and cut back the historical level of hopper car maintenance costs that were previously “embedded” into the revenue caps.

The CWB on Tuesday said farmers have the extra funds coming, because “in addition to being overcharged for 2007-08, producers this year faced the largest-ever annual increase in rail rates for grain, with costs increasing eight per cent.”

The CWB and a number of general farm groups for months now have jointly urged the federal government to order a rail costing review of grain transportation. “This could help ensure the revenue cap is set at a reasonable level,” the CWB said Tuesday.

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