Monday, October 18, 2010

Rail Cost Review? How about a CWB Cost Review?

The CWB recently has been advocating for a rail cost review because a study by Travacon Research Ltd. showed that “farmers paid $8.81 per tonne ($275 million overall), more than what was considered fair and reasonable compensation for moving grain under the former Western Grain Transportation Act.”  To put this in perspective, I looked at all the costs involved in marketing and moving wheat as reported by the Federal Grain Monitor.

Over the last eight years:
  • the average “applicable” rail freight rate for spring wheat has gone up about 21%
  • CWB costs on wheat have gone up about 56% (including “transportation savings”)
  • Grain company handling charges (elevation and cleaning, including trucking premiums paid to farmers) have risen about 9%
The cost of handling and moving grain has indeed increased over the years.  I can’t comment on the Travacon study results, but if it’s true, perhaps a review is in order.  Regardless of the rail rate situation, farmers need to know the CWB is being managed and directed with their interests in mind; CWB costs are farmers’ costs and the approach to costs at the CWB should mirror the approach to costs on the farm.

Why is the CWB focusing on rail rates when its own costs are rising at more than double the increase of the rail rates?  Regardless of your view of the CWB, it’s simply good business to reduce costs as much as possible.

Much of the CWB transportation savings come from tendering and are indicative of what competition between the grain companies would do to handling charges for CWB grains.  If the CWB bought grain at the port – if it became a FOB buyer – we would see a significant drop in the cost of moving and handling export wheat. 

The CWB has effectively become a FOB buyer of barley – both malt (CashPlus) and feed (GDCs); if its works for barley, shouldn’t it work for wheat as well?

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