Farmers fear fallout of crude-by-rail plan
Still smarting from last year’s grain backlog, Alberta farm groups say Premier Rachel Notley’s suggestion that the federal government invest in crude-by-rail capacity could make it even harder to get their crops to market.
Notley said Monday her proposal that the Trudeau government invest in rail cars and locomotives to allow for the shipment of more crude is an effort to tackle the widening price differential Alberta receives for its oil, and is not intended to interfere with the movement of grain on the rails.
But Prairie farmers — who have lost billions of dollars in sales in the past five years due to two separate rail shipment logjams that left crops stranded in bins and elevators — are concerned their industry could be collateral damage.
“Inadvertently, it will (hurt us),” said Lynn Jacobson, president of the Alberta Federation of Agriculture.
“If you’re going to ship more of one commodity, then you’re going
to have to ship less of another.
The railways are operating close to capacity now — when they have to start prioritizing, in a lot of cases, that hurts grain shipments.”
Farmers were furious last spring when higher-than-expected crop volumes (combined with cold weather that forced the railways to run shorter trains) created a grain shipping backlog.
The delays in getting product to market caused cash flow issues for producers and damaged Canada’s reputation as a reliable exporter, farm groups say.
An even larger rail transportation crisis took place in 2013-14, when the combination of a record harvest and a brutally cold winter slowed grain deliveries and cost farmers upwards of $5 billion in lost sales.
While the grain transportation system appears to be running smoothly so far this year, a delayed harvest as well as a significant carry-over from last year’s crop means there will likely be some heavy shipping months this winter.
Ward Toma, general manager of the Alberta Canola Producers Commission, said many farmers believe the federally imposed revenue cap on grain shipments results in railway companies prioritizing other commodities.
“The railways want to haul stuff that pays a bigger margin,” Toma said. “Grain is a regulated product for them, so there’s not much incentive for them to move it. There’s more incentive for them to move an unregulated product like oil.”
He added that more crude cars — without investments in the crews to staff them, as well as the infrastructure of the tracks themselves — will only increase congestion on the rails.
“I can’t see it not clogging up the system,” Toma said.
Last May, the federal government passed the Transportation Modernization Act, aimed at helping farmers get their crops to market. The legislation establishes reciprocal penalties for unmet commitments between railways and their customers, and also permits the Canadian Transportation Agency to launch formal investigations into supply chain issues.
Canadian Pacific Railway Ltd. and Canadian National Railway Co. have each pledged to meet the needs of the country ’s agricultural producers this year. In June, Calgary-based CP announced plans to invest more than a half-billion dollars in new, high-capacity grain hopper cars. In addition, CP “has added people and locomotives and invested record amounts in capital to meet the needs of its customers, across all lines of business, and the broader economy,” spokeswoman Salem Woodrow said in an email.
Montreal-based CN — which issued a formal apology in March as a result of the 2017-18 grain backlog — has acquired 1,000 new, high-capacity hopper cars, and has plans to acquire 200 new locomotives over the next three years. The company says grain movements on CN in September were the secondhighest on record, in spite of the delayed harvest.
It’s clear the railways are motivated, said Mark Hemmes of Quorum Corp., the federal government-appointed monitor for the Prairie grain handling and transportation system. But they are also under pressure from all sides, he said.
“The volumes are increasing in oil, but they’re also increasing in potash, they’re increasing in coal, the container traffic continues to grow,” Hemmes said.
Crude-by-rail exports hit an alltime high of 206,000 barrels per day (bpd) in July, up 73 per cent from a year earlier. The oil industry expects that number will reach 300,000 bpd by the end of the year.
While farmers sometimes blame an increase in crude by rail for their personal transportation woes, Hemmes said the majority of oil being shipped out of Alberta is headed for refineries in the Midwest and the U.S. Gulf Coast — which is not where the majority of grain flowing out of Alberta is headed.
“We do send a significant amount of grain from Western Canada into the United States, but 75 to 80 per cent of it is going either to Thunder Bay, (Ont.), Vancouver or Prince Rupert (B.C.),” Hemmes said.
However, Hemmes added if efforts to get Alberta crude to the west coast become increasingly reliant on rail, farmers will be right to worry about congestion on the line.
“If they start selling (more oil) to the west coast, it will have a significant impact,” Hemmes said.