Drought may have surpassed grain transportation as the number one challenge on the collective mind of Western Canadian grain farmers this year, but the need to address long-term logistical challenges should not be forgotten, says an ag economist from the University of Saskatchewan.
“In the current situation it looks like basis levels may return to historically normal levels, however if you look at the long-term trend, we’ve seen very significant growth in the volume of grain exports over time,” says Richard Gray in this interview filmed at SaskWheat’s recent semi-annual meeting. “We’re going to see more large crops in the future, and every time we have one of those we’re going to have high basis levels.”
As he explains in the conversation below, “the big issue is increasing capacity through the West Coast.” Gray has compiled a list of policy changes and investment priorities that he says would expand the grain pipeline West and mitigate transportation-related losses following another large crop:
- The volume-based rail revenue entitlement (aka the “revenue cap”) should be tweaked to provide railways with an incentive to move more grain in winter. “They don’t get paid any more for moving grain in winter than they do in the summer. It’s more difficult to move then, so to use that capacity, we need some better incentives to move in the wintertime,” he explains.
- Improved supply chain coordination — “When the system gets backed up right now, there’s no third-party that can go in there and sort things out and decide what grain moves. Right now the railways decide what grain moves and it plays havoc with loading boats and for the grain companies, so we need to sort that out,” he says.
- Better public information, including crop size forecasting and reporting. Gray notes a West Coast-based futures market might also provide better price signals.
- Investment in West Coast port facilities. “Most of the grain in Western Canada, it’s natural shipping route is west, and when you consider Asia is the growing market, virtually all of it should go west,” says Gray, noting the cheapest way to move grain from as far east as Brandon to Europe is through Vancouver and the Panama Canal, and not through Thunder Bay.
The recent news that G3 is looking to build a new terminal at Vancouver will be beneficial, but he says much more investment will be required to loosen the bottleneck on grain movement west. “We need more terminals, and in order to get more terminals, we need to think about ports as a public utility and provide some public incentives to increase port capacity,” says Gray.
Since port real estate is hard to find in Vancouver, he says there’s room to expand at Prince Rupert, but grain companies are leery because the port is only served by one railway.
Since most of these recommendations would require action by the federal government, the upcoming election campaign could provide a forum for discussing how to improve grain transportation, notes Gray.
“There is some public role in most of those. It is a multi-billion dollar issue. These issues for farmers are huge,” he says. “It should become something that all the federal parties should be looking at.”